LNG Value Chain Global LNG Scenario Capital Expenditure of LNG Terminal Indian Market of LNG LNG Pricing LNG Scenario, Pre & Post Covid-19

1. A Study on
COMMERCIAL
ASPECTS OF
LNG
IP 501
UNDER THE GUIDANCE OF
DR PRAMOD PALIWAL
DEAN, SCHOOL OF PETROLEUM
MANAGEMENT,
PANDIT DEENDAYAL PETROLEUM
UNIVERSITY
ALL DATA ARE FROM SECONDARY SOURCES

2. We will be
learning about
● LNG Value Chain
● Global LNG Scenario
● Capital Expenditure of LNG Terminal
● Indian Market of LNG
● LNG Pricing
● LNG Scenario, Pre & Post Covid-19

3. LNG Value Chain

4. https://www.hoeghlng.com/our-business/default.aspx

5. http://www.ramentor.com/case-wartsila/

6. https://www.researchgate.net/profile/Inkyu_Lee4/publication/321990488/figure/fig2/AS:751224412438528@1556117265597/LNG-value-chain-and-the-cost-breakdown-created-with-data-from-refs-5-and-6.png

7. MAJOR PLAYER IN THE
VALUE CHAIN
LIQUEFACTION
SHIPPING
REGASIFICATION
https://www.researchgate.net/figure/Global-players-activities-along-the-LNG-value-chain_tbl5_242448674

8. Cost Breakdown by Plant Area
Source: BCG Analysis, GIIGNL, Oxford energy

9. LNG Value
Chain
Cost
($ / MMBtu) 1.0–3.0 3.0–4.5 0.8–1.5 0.4–0.8
Typical
Investment
(5MMTPA
Project)
$2.0–6.0
billion
$6.0–10.0
billion
$1.0–2.5
billion
$1.0–1.5
billion
Regasification
terminal
Shipping &
Transportation
Liquefaction plant
Upstream field
development
Source: BCG Analysis, GIIGNL, Oxford energy
Cost
MMBtu :One Million British Thermal Units
MMTPA Million Metric Tonne Per Annum

10. LNG TRADE
LIQUEFACTION PLANTS
PROPOSED NEW
LIQUEFACTION PLANTS
SHIPPING LNG RECEIVING
TERMINALS FLOATING
REGASIFICATION
Source: IGU World LNG report, S&P Global Platts
GLOBAL LNG SCENARIO

11. Global Liquefaction capacity development from 1990-2025
Global Regasification Terminal capacity 2000-2025 Global Active LNG Fleet, Order book by delivery, Avg. capacity
Source: IGU World LNG report, Rystad Energy
GLOBAL CAPACITY
Liquefaction: 430.5 MTPA
Shipping: 541 Active LNG
fleets
Regasification: 919.7 MTPA

12. Source: Statista 2020, GIIGNL Annual report 2020

13. Capital
Expenditure of
LNG Terminal
Global LNG regasification capacity is expected to
grow by 43% between 2019 and 2023, from 45.7
trillion ft in 2019 to 65.9 trillion ft by 2023. Asia is
expected to add the highest regasification
capacity of 12.6 trillion ft by 2023. Within the
region, India plans to add the highest capacity of
around 4.3 trillion ft by 2023. In terms of new
build capex, India stands third with US$4.9 billion
over the next four years.

14. Source : Upstream analysis by Global Data
19

15. CAPEX – for both LNG plant and upstream infrastructure – will total more than US$200 billion between 2019 and
2025. This will provide a major boost to engineering, procurement and construction (EPC) contractors and other
providers along the supply chain. However, the LNG industry is notorious for cost overruns and project delays –
just 10% of all LNG projects have been constructed under budget, while 60% have experienced delays.
Cost Breakup Matrix for a Typical Liquefaction Plant.
Percent (%) Of
Total Cost
Gas NGL Lique
factio
n
Utiliti
es
LNG
Storage
Total
Treatment Fractio
nalizati
on
Refri
gerat
ion
and
Offsit
es
and
Loading
Equipment 4 1 14 10 1 30
Bulk Material 3 1 7 5 4 20
Construction 4 2 6 8 15 35
Misc & Services 1 1 5 4 4 15
Total 12 5 32 27 24 100
source: IHS Markit
18

16. Source: https://www.investello.com/Analysis/Growth/PETRONET
Financial Aspects of Petronet LNG(INR) 17

17. Sources
● https://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/02/NG-83.pdf
● https://ihsmarkit.com/products/lng-market-outlook-demand-forecast.html
● https://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/02/NG-83.pdf
16

18. Overview
Of Indian LNG
Market

19. Five projects are now under construction and expected to come online to cater to
growing domestic gas demand.
1. Mundra (Gujarat)- It has not yet entered the commissioning phase due to a
lack of commercial agreements for end-use.
2. Jaigarh Phase 1 (Maharashtra)- Start-up has been delayed due to pipeline
construction problems
3. Jafrabad (Gujarat)- Currently under construction at Hyundai Heavy
Industries in South Korea.
4. Dhamra (Odisha)- Construction works started in mid-2018, with Larsen &
Toubro setting up the tanks for gas storage and a Taiwanese company CTCI
Corporation building the regasification package.
5. Chhara (Gujarat)- Construction on a breakwater has already begun and the
project could be ready by the end of 2022.
EXISTING LNG TERMINALS
CAPACITY
Multiple LNG projects have been
proposed on India’s east and west
coasts.
WEST COAST LNG TERMINALS
• Morbi (Gujarat)
EAST COAST LNG TERMINALS
• Karaikal Port (Tamil Nadu)
• Gangavaram LNG (Andhra Pradesh)
• Haldia (West Bengal)
Proposals in India have been cancelled
or stalled, but are nonetheless
long-term opportunities.
• Kutch (Gujarat)
• Mumbai LNG (Maharashtra)
• Kakinada LNG (Andhra Pradesh)
• Krishnapatnam LNG (Andhra
Pradesh)
• Kolkata Port LNG (West Bengal)
14https://ihsmarkit.com/products/lng-market-profile.html

20. Cross border pipeline
• Russia-China pipeline- Russia was
reportedly interested in extending a
pipeline to India via China or via
Afghanistan and Pakistan.
• Iran-Pakistan-India (IPI) pipeline-
still a long-term opportunity,
without India pipeline won't be
proven economically viable.
• Turkmenistan-Afghanistan-Pakista
n-India (TAPI) pipeline- Project has
been discussed for a decade but is
facing geopolitical and technical
risks.
• Iran has also proposed sending gas
to India via a deepsea pipeline- It
would span from Oman to India.
Iranian feedstock would feed a
pipeline that originates in Oman
and lands in Gujarat.
• GAIL is working on expansion of northern network part of the Jagdishpur-
Dhamra - Haldia is under construction and received ~$800 million boost
and is expected to complete in the next two to three years.
• Government is planning to invest nearly $10 billion to expand gas
infrastructure to Myanmar via Bangladesh.
• Indian Oil Corporation also agreed to cooperate with Nepal over building a
gas pipeline along the Motihari-Amlekhgunj petroleum pipeline.
EXISTING PIPELINE
INFRASTRUCTURE
• GAIL is the largest player in India’s transmission system as compared to
companies like GSPC, Indian Oil, and Petronet LNG. GAIL is considering
unbundling the marketing and trading division from the pipeline business
for further investment. Main pipeline of GAIL is Hazira-Vijaipur-Jagdishpur
(HVJ) that brings gas from the offshore fields of Gujarat to northwest India.
DEVELOPMENTS IN PIPELINES
13
https://ihsmarkit.com/products/lng-indian-market-report.html

21. LNG Pricing

22. Current Natural Gas Pricing in INDIA
APM :- Administered
Price Mechanism
N-APM :- Non Administered
Price Mechanism
● Gas produced from JV’s
● Imported LNG
11
http://ppac.org.in/WriteReadData/userfiles/file/NG_Price.pdf

23. Gas Pricing in India
The Price formula :-
Current: Global Gas Indexed Price (US HH + Canada Alberta+ UK NBP –EU + Russia Domestic)
P(Gas) = (VHH
* PHH
) + (VAC
* PAC
) + (VNBP
* PNBP
) + (VR
* PR
) / (VHH
+ VAC
+ VNBP
+ VR
)
• VHH
: Total annual volume of natural gas consumed in USA & Mexico.
• VAC
: Total annual volume of natural gas consumed in Canada.
• VNBP
: Total annual volume of natural gas consumed EU and FSU excluding Russia.
• VR
: Total annual volume of natural gas consumed in Russia.
• PHH
& PNBP
: Annual average of daily prices at Henry Hub & National Balancing Point .
• PAC
& PR
: Annual average of daily prices at Alberta Hub & Russia.
https://www.business-standard.com/article/news-cm/gail-india-updates-on-allocation-of-apm-gas-supplies-114110501436_1.html
http://ppac.org.in/WriteReadData/userfiles/file/NG_Price.pdf
https://www2.deloitte.com/in/en/pages/energy-and-resources/articles/gas-pricing-in-india.html
10

24. LNG : Typical Oil Indexed Formula
● LNG price = B* P (Oil)
B (Slope) = 16.67% to 17.2 % approx.
● LNG price = A + B* P (Oil)
A = Constant (helps lower the slope)
B = Slope (Can be negotiated as per the constant agreed)
• Notes : P = Price of Oil – As per the June 2020 USD 40 / BBL
• 1 BBL contains 5.8- 6.2 MMBTU which means B value will be by 1/5.8 and 1/6.2
http://www.ppac.gov.in/WriteReadData/userfiles/file/New%20Domestic%20NaturalGasPricingGuidelines,2014.pdf
https://www.gktoday.in/gk/indias-gas-pricing-system/
9

25. Contractual -Framework
Seller (Qatar
Petroleum)
Buyer (Petronet
LNG)
Utilities Companies (
Haryana City Gas)
Charter Party
http://www.ppac.gov.in/WriteReadData/userfiles/file/New%20Domestic%20NaturalGasPricingGuidelines,2014.pdf
https://www.gktoday.in/gk/indias-gas-pricing-system/
8

26. LNG Scenario, Pre & Post Covid-19

27. Pre-COVID LNG Scenario
• An Industry in turmoil
Reduced energy demand
Over-supply of LNG
Warmer weather
Oil price crash
Plunge in LNG prices
6
https://www.livemint.com/market/mark-to-market/petronet-lng-s-q4fy20-shows-covid-19-impa
ct-competition-key-concern-ahead-11593747871939.html

28. LNG Market response to COVID-19
• Global energy demand dropped by 3.8% in Q1
• Being physically unable to unload scheduled LNG cargoes
• With limited storage and inventory levels reaching “tank tops”, buyers have been forced to turn
away cargoes
• Buyers have certainly been triggering deferral rights, DQT (Downward Quality Tolerance)
entitlements and cancellations where available
• The issuance of a force majeure (FM) notice
5
https://www.livemint.com/market/mark-to-market/petronet-lng-s-q4fy20-shows-covid-19-impa
ct-competition-key-concern-ahead-11593747871939.html

29. • The COVID-19 pandemic has resulted in different approaches in exercising these various contractual
rights:
1. China (the world’s second largest LNG importer), with CNOOC leading, was the first to issue FM
notices. These notices were supported by FM certificates issued by the China Council for the
Promotion of International Trade (which were disputed by Total, Shell and Qatargas).
2. India (the world’s fourth largest LNG importer) was the next to issue FM notices as the world’s
second most populous country entered lockdown. Gail, Gujarat State Petroleum Corporation and
Petronet LNG amongst the first to issue such notices.
3. Japan and South Korea (the world’s first and third largest LNG importers respectively) were more
cautious – partly due to increased LNG storage capacity. Instead, exercising DQTs and rescheduling
and swapping cargoes has been the favoured approach.
4
https://www.livemint.com/market/mark-to-market/petronet-lng-s-q4fy20-shows-covid-19-impa
ct-competition-key-concern-ahead-11593747871939.html

30. Impact of COVID-19 on Petronet LNG Ltd.
• The company’s flagship Dahej terminal processed 206 tBtu of LNG, representing a 7% decline from
the December quarter.
https://www.livemint.com/market/mark-to-market/petronet-lng-s-q4fy20-shows-covid-19-impa
ct-competition-key-concern-ahead-11593747871939.html
3

31. • Dahej utilisation levels are now at 100% in June from about 55-60% in April-May.
• The utilisation of the Kochi terminal is expected to improve to 30-35% post the commissioning
of the Kochi-Mangalore pipeline by the end of July
• Risk of lower regasification tariff at Kochi exists. Petronet has already cut the regasification
tariff at Kochi terminal to Rs 79.14 but the offtakers are demanding a lower tariff.
• Petronet has increased the dividend to Rs 12.5 per share in FY20 from Rs 10 per share in FY19.
• Meanwhile, highest ever quantity of LNG in a financial year, processed at Dahej Terminal in FY
2019-20 at 885 TBTU
• Highest ever quantity of LNG in a financial year, processed by the Company in FY 2019-20 at 928
TBTU
• Highest ever PAT in a financial year, achieved by the Company in FY 2019-20 at INR 2,698 Cr
2
https://www.livemint.com/market/mark-to-market/petronet-lng-s-q4fy20-shows-covid-19-impa
ct-competition-key-concern-ahead-11593747871939.html

32. Brighter Future for LNG
• Additional demand for energy in the upcoming years
• Insufficient infrastructure for renewable energy sources
• Policy support for transition fuel in India:
LNG stations excluded from
the purview of CGD
exclusivity licenses
The government aims to
simplify the gas pipeline
tariff structure
Launch of its first natural
gas trading platform-IGX
https://www.petronetlng.com/
https://www.natlawreview.com/article/lng-lockdown-lessons-
what-s-next-lng-industry-post-covid
1

33. Team
ABHISHEK SINGH 20191002
ACHARYA KAJRI 20191003
ARCHIT KHARE 20191004
ARJUN REGHU 20191005
GEETIKA GUPTA 20191012
SAMGHAMITTRA SHARMA 20191070

34. fin.