Paper 6 Fuel Security Gas

7/31/2019 Paper 6 Fuel Security Gas

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Long Term Fuel Security for Gas Based Generation

NTPC LimitedCorporate Gas Sourcing

S.D.Prasad, AGM (GS)K.K.Hota, DGM (GS)

D.K.Padhi, Sr. Manager (GS)Pankaj Mittal, Sr.Engr. (GS)

IPS 2012

Powering the NationChallenges Ahead


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2035: Likely Share of Natural Gas in Power Generation

In Indian Context, for meeting 9-10% growth rate, power generation will necessarily have to be optimallyexploited from all available sources viz. Coal, Hydel, Nuclear, Renewable etc. including Natural Gas

Source: EIA 2010

World

India

NG ~ 20%

NG ~ 19%

0

5

10

15

20

2007-08 2031-32

Source: Integrated Energy Policy, GOI

10%

16%


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Installed Capacity

Coal 55.73%Hydro20.76%

Nuclear

2.56%

Nat. Gas 9.51%

Others11.44%

Total: 186 GW

Source: CEA (As on 31.12..2011)

Gas based capacity

17743 MW

Share of Natural Gas Power Generation Capacity In India

NTPCs Installed Capacity on Gas in Combined cycle:

Own: 3955 MW & Thru JV: 1940 MW


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Gas/ RLNG Availability

Sector wise Gas/ RLNG Consumption

Source: MOP&NG, Data of June 2011

Source Average Daily Gas

availability(MMSCMD)

ONGC 50.78

OIL 6.63

PMT 11.87

Other JVs 3.39

KG-D6 37.0

Long TermRLNG

25.13

Spot RLNG 21.2

Total 156

Sector Supply(% of Total)

Fertilizers 22.7

Power Sector 37

CGD (Domestic

+CNG) 4.8Refineries 11.9

Petrochemicals 3.4

Others 20.2

Around 60% of the Gas/RLNG goes to anchor customers viz. Power &Fertilizer sectors, as top priority, which are Regulated Sectors

Present Gas/RLNG Availability in India


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Source/ Supplier Contractedquantity

Supplies2011-12 (till Jan11)

Contract validtill

APM/PMT ONGC/ GAIL 14.48 8.39 2021/2019

Non-APM ONGC/ GAIL 0.82 0.15* 2016

KGD6 Gas RIL/Niko/BPEAL 2.30** 2.00** 2013-14RLNG-Longterm

PLL (QatarLNG)/GAIL

2.0 1.47 Dec 2019

Total 12.01

*Supplies commenced w.e.f. 18th Nov 2011**Out of 4.46 MMSCMD allocated by Govt.. Balance 2.16 MMSCMD to be tied up

Domestic gas allocations have been made corresponding to 70% PLF.

Besides, NTPC also ties up Spot RLNG/ Fallback RLNG on RE basis

With these arrangements, NTPC has achieved 100% Fuel Security for itsexisting Gas Stations

Currently, almost NIL Generation Loss on account of shortage of Gas

Gas based Generation at NTPC

Total Gas Based Capacity : 3605MWGas Requirement @ 90% PLF : ~ 17.35 MMSCMD

Existing Gas/ RLNG Agreements:

Gas figures in MMSCMD


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Issues of Concern for Existing Stations

2009-10 2010-11 2011-12 (till Jan11)

DC (%) 90.44 93.11 93

PLF(%)78.51 72.9 69

For 2011-12:

Total PLF: ~ 69%

Gas 56% , RLNG (LT + Spot)- 13%

DC & PLF data for NTPC

Loss of Generation due to Grid (2011-12 till Jan12): 6630 MUs

Depleting Domestic gas

(APM/PMT/KG DG) Supplies

Increasing dependence on RLNGRLNG Prices have increased

almost twice in a year

Non availability of GenerationSchedule


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Likely reduction in present allocation of domestic gas

Around 10,000 MW Gas based projects (mainly Pvt. Sector) are underadvance stage of construction/ commissioning, however without anygas allocation

It is apprehended that current firm allocations to existing gas basedpower stations may be reduced by Govt. in order to allocate gas forupcoming projects in near future

This may further increase the dependence on RLNG

In current scenario, it has become essential to source RLNG at affordable

prices to meet the additional gas requirement of existing gas basedstations

Issues of Concern for Existing Stations


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NTPC has requested GoI for allocation of 43.375 MMSCMD gas for 8550MW Gas based capacity addition

Considering limited availability of domestic gas in the country, NTPC hasfurther requested MoP to prioritize gas allocation of at least 23.85MMSCMD for four gas based expansion viz. Kawas II ,Gandhar II ,Kayamkulam Stage II & Badarpur Gas totalling 4700 MW

MoP has already recommended to MOP&NG for consideration of EGOM forallocation of gas (@ 70% PLF) for following three projects :

Kawas Expansion 1300 MW 4.85 MMCMDGandhar Expansion 1300 MW 4.85 MMCMDKayamkulam Stage-II 1050 MW 3.92 MMCMD

Total 3650 MW 13.62 MMCMD

Government decision in this regard is awaited

NTPCs Future Gas based Expansion Projects


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Tie up of Domestic Gas

Domestic Gas projections in country in near future are not veryoptimistic

Although there is huge natural gas demand, Price affordability remainsan issue particularly for LNG

There is a challenge to bridge the demand-supply gap

NTPCs identified gas based expansion projects score very high on thecriteria set up by MoP for allocation of domestic gas

CPSUs like NTPC can not proceed ahead for investment approval bythe Board for implementation of these projects without domestic gasallocation

Issues of Concern for Future Projects


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Sourcing Gas for Future Power Projects

Fertilizer can be imported by producing it at very competitive prices in Gas rich countries. However,

Power can not be imported

Since there is a direct subsidy for Fertilizer sector, management of subsidy is easier for Fertilizersector as compared to Power sector

Recently, Inter-Ministerial committee on policy for pooling of natural gas prices has also recommendedfor preferential allotment of domestic gas for core sectors i.e. Power & Fertilizer sectors

Prior Allocation of Gas for Future Gas Projects

As per present policy of Govt., gas for new gas based projects will be allocated, subject to availability,when the projects are ready for commissioning

Investment decision by CPSUs like NTPC can not be taken because of uncertainty of gas allocation

There is a risk of non recovery of fixed cost if assets remain unutilized

Priority Allocation for Power Sector

Tie up for bridging the gap NTPC has recommended that ratio of domestic gas to RLNG for Power sector should be 80:20

Inter-Ministerial Committee on Gas Price Pooling has recommended that Power sector on the basisof existing schedule of gas based power plants coming up, will need to source around 27% of theirrequirement from R-LNG by 2016/17

Sourcing this RLNG at affordable price is an issue


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Sourcing Gas at prices affordable for Power Sector

Exploring unconventional Gas

WEO 2011 estimates that the share of production of unconventional gas (Shale gas, CoalBed Methane, Gas Hydrates, tight gas) is expected to increase two-fold globally

Unconventional gas in US currently accounts for 50% of total gas production

International Energy Outlook 2011 Reference case projects a substantial increase inunconventional gas supplies-especially in United States & also in Canada and China.

There may be surplus in some regions and if R/P ratio remains stable, Prices may not become toohigh. Surpluses are likely to find way in demand regions, like India & China.

Production trend Consumption trend

Natural Gas Production/Consumption Trend (in trillion cubic feet)

Source: International Energy Outlook 2011


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Sourcing RLNG at prices affordable for Power Sector

In view of increasing E&P activities for Shale Gas in other countries, there is anopportunity to import this as LNG in India at competitive prices

Shale gas is a game changer is US ( around 23% in 2010)

Assessment of Shale Gas resources across the globe are under way

As per IEO 2011, remaining recoverable resources of Shale Gas in 33 countries includingUS is 6622 tcf

As per IEO 2011, two group of countries appear to have good prospects

Countries which are highly dependent on natural gas imports & have substantial Shale gas

resource relative to their current consumptions ( France , Poland ,Turkey, South Africa, Ukraine,Chile, Morocco)

Countries which already have considerable natural gas resources & also Shale gas resource(more than 200 tcf)- like US, Canada, Mexico, Russia, China, Australia, Libya, Argentina, Brazil

According to the preliminary studies carried out by the US EIA in April, 2011 India has

technically recoverable Shale gas resources of nearly 63 tcf

GoI is working on developing suitable Shale Gas exploration policy on priority


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Affordable RLNG- Henry Hub linked LNG Contracts

Recently, GAIL (India) Limited has signed a Sales and PurchaseAgreement (SPA) for supply of 3.5 MTPA LNG for 20 years with SabinePass Liquefaction, LLC, a subsidiary of Cheniere Energy Partners, L.P,USA.

Supplies will start in 2017 and can be extended up to 10 years

Pricing of this LNG is linked to Henry Hub

Currently, Henry Hub price is around USD 3.0 /MMBtu. At these levels, itis understood that this LNG will be available at relatively lower price ascompared to LNG with conventional crude linked formula

Henry Hub being quite stable over long periods means any pricingbenchmarked with Henry Hub appears a good strategy


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Henry Hub linked LNG Contracts

0

2

4

6

8

10

12

14

16

18

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Year

U

SD/MMBtu

Henry Hub

Brent Crude Spot

Japan LNG CIF

Trend of Brent Crude Spot vs Henry Hub & Japan LNG CIF

GAILs deal would encourage other LNG sourcing companies in India to

try for similar contracts with US suppliers

NTPC has an opportunity to source a part of this LNG for its futureexpansion projects


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Future Henry Hub Prices

U.S. Energy Information Administration (EIA) has come out with a reportwhich assess how specified scenarios of increased natural gas exportscould affect domestic energy markets in US

In the report, four scenarios of export-related increases in natural gasdemand have been considered as provided by DOE/FE

Under the High growth / Low Shale gas production case, the Henry Hubprice in 2035 is projected to be around $9.75 per MMBtu

Other elements which are to be considered for Future Henry HubProjections are :

Global LNG trading volumes

Various uncertainty elements

Macroeconomic considerations


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Sourcing Gas at prices affordable for Power Sector

Scenario assumptions:

Global Shale gas resources are quite substantial. (EIA / Oil & Gas Journal)

Unconventional gas is likely to be explored and produced. R/P ratio remains fairly stable as per the prevailing trend of increase in global gas

reserves.

Henry Hub is more likely to remain less volatile in correlation with crude.

US Government favorably approves RLNG exports to Non-Free Trade countries.

The global macroeconomic indices move more or less, on expected lines

In view of above assumptions withstanding the test of time, RLNG from US is likelyto find its way in India

This might also result in easing premiums on RLNG from Middle East

Either way, India may end up importing gas as RLNG


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Development of LNG Regasification Terminals

To source additional RLNG in the country, more LNG terminals are required

Development of number of LNG Regasification terminals in the country is a

good sign for Indian gas industry

Efforts need to be made for timely commissioning of these terminals

Faster development of Pipeline Network

There exists regional disparity in terms of access to available gas in India.

Pipelines shall help in penetration in Industrial and Commercial markets.

Govt. is contemplating development of National Gas Grid cutting across length andbreadth of the country

Majority of pipelines under construction are lagging behind their schedule Govt. should ensure timely development of domestic gas fields to ensure timely

development of pipeline network

Further, it is necessary to establish the gas pipeline networks prior to arrival of gas. Thiswould help establish the market by unleashing the latent demand


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At present, domestic gas price is based on market discovery basis & formula islinked to Crude oil price.

e.g. Formula for KG D6 Gas Price

Gas price = 2.5 + (CP-25)^0.15 + C (in US$/MMBtu in NCV basis)where, CP = Crude price in US$/barrel, with cap of US$ 60/barrel & C =Zero

Recently, Inter-Ministerial Committee has recommended to have a Reference

price for future gas price discovery as Average between the Henry Hub (US)prices and Asia Pacific LNG netback price

However, at present, there is no true market in India, which is still evolving.Consumers are buying marginal RLNG at high prices of around UD$18-20/MMBTU. Does it mean that it is the Market Price??

Domestic Gas Pricing should be reasonable commensurate with associated risks Gas price should be determined/ approved by Independent Regulator

Domestic Gas Pricing


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Transportation Tariff

In present Zonal-postage transportationtariff, the customers at far end of thepipeline have to bear significantTransportation charges

Transportation charges should bereasonable so that there is uniformdevelopment of Gas based stationsacross the country

Inter-Ministerial Committee on Poolinghas recommended a Hybrid System

Other Issues

Open Access

We need to have multiple suppliers &

consumers having access to Trunk pipelinesin a transparent process

Non discriminatory Open Access isnecessary

Gas Transportation business should betotally segregated from Gas Sale business,as it is being followed in Power sector

between Power Sale & Transmissionactivities

Gas Regulations

PNGRB Act may be amended for greater role

of the Regulator for the entire gas sector

Regasification tariffs to be in the purview ofRegulator

Open Access for RLNG terminals be madeavailable on non-discriminatory basis

Optimization in Tax Regime

Waiver of Customs Duty on LNG

DeclaredGoods status for Gas/ RLNGas also endorsed by the Inter-Ministerial Committee on Gas pricepooling


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Thank You


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Increase in Gas/ RLNG Prices

APM/PMT KG- D6

LONG

TERMRLNG

SPOTRLNG

DeliveredGas Price

(US$/

MMBtu)

2010-11(April- Jan)

2.86(till

May10) 6.97 11.29 13.002011-12

(Apr-Jan) 5.84 6.97 14.12 23.30

FCOG(Rs/KWh)

2010-11(Apr- Jan) 1.22 2.96 4.79 5.20

2011-12

(Apr- Jan) 2.48 2.96 5.99 9.90

Prices of APM & KG D6 Gas are due for revision in April 2014

Example: NTPC Dadri


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Sl.

No.Project Nominal Capacity

(MW)Gas Requirement

(MMSCMD)

@ 90% PLF

NTPC

1. Kawas Stage II 1300 6.6

2. Gandhar Stage II 1300 6.6

3. Badarpur Gas Stage III 1050 5.325

4 Auraiya Stage II 1050 5.325

5 Anta Stage II 1050 5.325

6. Faridabad Stage II 1050 5.325

7. Dadri Gas Stage II 700 3.55

8 Kayamkulam Stage II 1050 5.325

Sub Total 8550 43.375

Through JV

1. Ratnagiri CCPP Stage-II 2100 10.65

Total 10650 54.025

NTPCs Identified Future Gas based Projects


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2012-13 2013-14 2014-15 2015-16 2016-17

ONGC* 55.04 55.01 57.58 61.98 91.09

OIL** 8.16 9.58 10.80 11.00 11.00

Pvt JV*** 61.15 83.50 101.78 104.40 107.00

Total

(Domestic)

124.35 148.00 170.00 177.38 209.29

Imports (LNG) 73.00 101.20 101.20 156.40 184.00

ExpectedTotalAvailability

197.35 249.20 271.20 333.78 393.29

{*} & {**} Projections as per ONGC &OIL{***) Projections as per DGH- Above projections excludes gas sources like Shale Gas, Gas Hydrates etc- LNG availability has been assumed matching with regasification capacity creation

Source: 12thPlan Sub Committee on P&NG

Future Domestic Gas Availability

InMMSCMD


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Demand including present supplies (In MMSCMD)

Sector 2012-13 2013-14 2014-15 2015-16 2016-17

Power 135 153 171 189 207

Fertilizer 62 110 113 113 113

City Gas 15 19 24 39 46

Industrial 20 20 22 25 27

Petrochemicals/Refineries/ Internal

Consumption 54 61 67 72 72

Sponge Iron/ Steel 7 8 8 8 8

Grand Total Demand 293 371 405 446 473Source: 12th plan Sub Committee on P&NG

Future Demand Projections

Documents

Paper 6 Fuel Security Gas