"Global market opportunity for LNG as a transportation fuel is immense"

Mr Rahul Deep Singh,
Hazira LNG Pvt Ltd
"Gas has been the fastest-growing hydrocarbon for the past decade, with demand increasing at around 2% a year since 2000. Global LNG demand has grown by an estimated annual average of 6% since 2000, reaching 265 million tonnes per annum (mtpa) in 2016. That's enough LNG to supply power to around 500 million homes a year!" says Rahul Deep Singh, MD, Hazira LNG Pvt Ltd. Excerpts from his email interaction with Offshore World.

Globally, how the sharp decline in natural gas prices affected the entire supply chain and what are the new business models that the players are following across various international markets?

What are the current and potential markets for Natural Gas in the coming years?

There are broadly three trends arising partly from the decline in natural gas prices and partly from the inherently climate friendly nature of natural gas. First, an increase in demand and rise of new LNG importing countries while demand from existing importers have tended to go north-ward. Second, the profile of LNG buyers has changed. New importers - from small or start -up electricity companies to intermediaries to national energy companies - are emerging as LNG trade is changing to mirror the evolving needs of buyers , including shorter-term and lower volume contracts with greater degrees of flexibility. Third, due to a combination of climate concerns and lower prices, there is increasing deployment of natural gas in more user channels, particularly the transportation sector.

Gas has been the fastest-growing hydrocarbon for the past decade, with demand increasing at around 2% a year since 2000. Global LNG demand has grown by an estimated annual average of 6% since 2000, reaching 265 million tonnesper annum (mtpa) in 2016. That's enough LNG to supply power to around 500 million homes a year!

Further, demand lead times have been shrinking with the advent of Floating Storage Regassification Units (FSRUs).As on date there are now 21 FSRUs in operation globally, with six more under construction. They offer a relatively quick and commercially flexible solution to meet growing gas demand, as well as replacing declining domestic gas production in countries where gas has traditionally played a pivotal role in the energy mix.

Since 2015, Colombia, Egypt, Jamaica, Jordan, Pakistan and Poland have all begun importing LNG, bringing the total number of importing countries to 35, up from around 10 at the start of this century.In 2016, Egypt, Pakistan and Jordan were among the top five fastest growing LNG importing countries in the world. Due to regional shortages in gas supplies, they took advantage of the flexibility of LNG supply, importing about 14mt in total.China and India were the other two fastest growing buyers, increasing their imports by 12mt of LNG in 2016. This boosted China's total LNG imports to 27 mt and India’s to about 20 mt.

On the supply side, with new LNG liquefaction projects coming on stream in Australia and the USA, global LNG supplies are expected to increase by about 50% by 2020 from 2014 levels, aggregating about 350 mtpa. One-third of this additional new supply capacity has already been commissioned, while the remaining two-thirds is expected to come on-stream by 2020. Global LNG market developments have kept pace with supply growth so far with the additional LNG supplies being offset by rising demand for new LNG importing countries. Given the concentration of new supply projects towards the end of the decade, some imbalance may perhaps emerge in the market but this is typical for any commodity sector where demand growth is continuous, while supply increase comes in somewhat chunky bits from large projects. In fact, given that global LNG demand is expected to double to about 500 mtpa by 2030 , Final Investment Decisions would be required by the industry on new projects beyond 2020 to keep pace with the demand outlook.

The buyers are now looking at the spot markets for gas supplies. What are the kind of contracts Hazira LNG is getting into with the suppliers and the buyers?

World over, LNG trade is changing to meet the evolving needs of buyers, including shorter-term and lower-volume contracts. While earlier the industry was typically characterized by long-term take-or-pay contracts concluded between the upstream project and downstream utilities with the import terminal being part of the integrated value chain, today, destination flexibility is becoming common place in new contracts, giving an impetus to short-term/spot deals.

When the Hazira terminal was commissioned in 2005, it launched the concept of a merchant terminal in India where the customers had the flexibility to choose various contractual options as per their needs such as the level of contracted quantity, the term of the contract, offtake rates, etc., which was a unique proposition in the Indian LNG market at that time.

Hazira continues to offer such flexible terms to its customers and has since expanded its portfolio of options to include both commodity sales, as well as regassification services for its valued customers. Our value proposition is further strengthened by competitive LNG sourcing from the world’s two biggest LNG suppliers, Shell and Total, who have access to a wide portfolio of LNG liquefaction ventures across the world.

Automotive sector is witnessing a boom in disruptive technologies within the use of conventional hydrocarbon fuel as the scientists have successfully developed LNG fuel based vehicles which are highly fuel & energy efficient. What kind of thrust this may provide to the natural gas suppliers?

What are the challenges in the LNG sector and how the industry is reacting with the popularity of Solar PV system, which is again a green source of energy?

Our shareholders,Shell and Total are pioneers in the LNG domain and are actively propagating the use of LNG as a transport fuel for trucks and ships with potential economic and environmental benefits compared to diesel and fuel oil. The energy density of LNG exceeds that of other liquid fuels, hence LNG is a very efficient fuel choice for heavy duty road transport. It can also reduce sulphur emissions, particulates and nitrogen oxides, helping reduce greenhouse gas emissions right from production to end use. The use of LNG as a transport fuel is now being extended to railways as well. On the marine side, the International Maritime Organization has agreed to a global 0.5% sulphur cap on marine fuel that will take effect from 2020. LNG as a fuel which contains virtually zero sulphur versus 3.5% specification for global marine fuel today, provides a viable alternative to shippers which is also economically superior as compared to marine gasoil alternatives.

The global market opportunity for LNG as a transportation fuel is immense, with the total demand for heavy duty/marine transportation fuels globally aggregating some 1.2 billion tonnes per annum. The transportation segment alone represents an over four-fold increase compared to the global size of the current LNG market at 265 mtpa! Ofcourse the entire transport segment demand will not switch over to LNG as multiple low carbon solutions are being considered by the industry, but the consensus view is that LNG for transport applications could easily account for about 70 mtpa of demand by 2025 globally. As a reference point, this is comparable to the total Japanese LNG demand, one of the anchor customers for LNG in the world today .

The opportunity in the Indian market is equally significant where the overall transportation fuel demand is about 100 mtpa across petrol and diesel sales. The government has also said that it wants to promote LNG as a fuel for vehicles, particularly for long-haul driven vehicles and trains. In November of last year, Tata Motors commenced trial runs for the country's first LNG-powered bus in Kerala. Overall, adoption of LNG by the transport structure, particularly trains and long haul trucks and buses will significantly increase demand for natural gas, particularly if enabling infrastructure is also put in place.

On the solar and other renewable energy sources, gas is well positioned to complement the growth of renewables industry in India which is poised to grow to 175 GW over the next few years.Gas is the cleanest fossil fuel source to manage the intermittency risk from renewables and will be a critical enabler to ensure round the clock power supplies to customers.

Indian Government envisages increasing share of natural gas in the energy mix to 20 percent by the year 2025 as compared to 10 percent in the year 2010 and on the other hand, India aims to become 100 % e-vehicles nation by 2030. How will the market dynamics change and what kind of opportunities & challenges the industry is likely to face in the near foreseeable future?

Both are positive developments towards a more environmentally sustainable energy economy. Given the scale of the Indian market with a collective demand of 100 mtpa of transportation fuels, we would likely need a combination of both gas and e-vehicles to reduce the environmental footprint from transportation. While e-vehicles are more suited towards the passenger segment/city operations, LNG is better geared as a transportation fuel for heavy duty, long distance haulage. In either case, demand for energy would continue to grow in tandem with the increasing number of vehicles on the road.

The key is to enable concerted development of infrastructure in order to ensure that there isn't a huge lag on either the demand or supply side for either options. A strong pipeline infrastructure is necessary for gas to be readily and reliably available at the last mile. We also need adequate investments in LNG infrastructure as well as a supportive price environment for LNG to actually land in the country. If the two sides are not carefully calibrated, we are likely to see a slower transition to a gas based economy.

A similar fate would await e-vehicles if there aren't enough charging points or there is unreliable grid supplies to power the e-vehicles. Further, an integrated well to wheel approach should be considered for such a transition as electrification of vehicles at the consumer end alone will not reduce the environmental footprint from transportation if power generation at source is from coal, for instance.

Majority of LNG business in India is with the PSUs who are significantly investing in expansion of their infrastructure. What kind of space does that leave for the private players engaged in this business ?

As a rapidly expanding economy, India's energy requirements are immense. The Gas4India campaign of the Indian government envisages a major share of natural gas in the nation's energy basket. Against this backdrop, there is plenty of opportunity and space for private companies to grow, with each player crafting its own value proposition for the industry.

Globally, capacity utilisation of LNG terminals is typically in the range of 40-50%as there are several components in the LNG value chain from liquefaction, shipping, port availability and storage, each layer adding its own level of uncertainty on operations. In a traditional tramline LNG value chain model, with high utilisation level of the terminal, there is very little room to offer any flexibility to customers. Given the changing dynamics of the industry with customers keen on shorter, flexible constructs , at Hazira we have focussed on flexibility as a key value proposition. Other players in the industry would likewise create their own unique value propositions for their respective customers.

Tell us about the current infrastruc ture at Hazira LNG terminal and plans for future expansions.

On the infrastruc ture front for Natural Gas supplies, how do you compare India with other emerging nations

Hazira LNG is a world-scale LNG terminal together with port infrastructure that has now completed 12 years of operations. Since the commission of Hazira LNG in 2005, the terminal has expanded from an initial regasification capacity of 2 million tonnes per annum (mtpa) to 3 mtpa in 2008 and then further to 5 mtpa in 2013. In addition, we have also facilitated the development of a multicargo port at Hazira through a sub-concession structure with over 1,000 container/bulk cargo ships landing at Hazira today every year.

There is potential to expand terminal capacity further based on market demand. We have undertaken evaluation and technical design work for potential future expansion. Currently, India has sufficient regasification capacity for the current size of the Indian gas market. The timing of the expansion would, therefore, be subject to suitable opportunities in the market.

With the government's plan to more than double the share of natural gas in India's energy mix, much of the supply would have to be met by LNG. For that to happen, there is a urgent need to press forward with efforts to generate new demand centres such as green corridors, smart cites as well as use of LNG for road, rail and marine transportation. If India does surge towards a gas based economy at a faster rate, we would need to harness domestic sources and expand infrastructure for LNG import terminals, floating storage , re-gasification facilities, gas transportation, etc.

What are the recent and ongoing research and development programs in the Natural Gas sector, and how will they benefit the industry to sustain competition with renewable resources?

There are a large number of research and development programs underway in the natural gas sector across every part of the value chain which seek to address issues ranging from cost reduction to environment sustainability, discovery of new sources, market expansion for natural gas and faster, distributed infrastructure. Shell, which is the majority shareholder in Hazira, is a pioneer in the Floating LNG space with Prelude at the upstream end of the value chain, as well as LNG to transport initiatives at the downstream end. In addition, Shell has also announced the formation of its New Energies division which is looking at investments in the renewables space, as well as concepts looking at synergies between natural gas as a clean & green fossil fuel and the renewables sector.