- 2 years ago
What to expect from IGX new small scale LNG contracts?
In conversation with MD & CEO Rajesh Mediratta.
In conversation with MD & CEO Rajesh Mediratta.
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TVTranscript
00:00 We have with us Mr. Rajesh Kumar Medhiratta, the MD and CEO of Indian Gas Exchange.
00:06 He will be talking to us about small scale LNG, what they have launched recently and also about their proposal to start a green gas certificate on the lines of renewable energy certificates.
00:19 Welcome to NDTV Profit, Mr. Medhiratta.
00:22 Thank you, thank you for having me here.
00:25 Sir, take our audiences to your recent launch about small scale LNG, what is the relevance and what is the idea behind it?
00:33 I will tell you that we have been trading piped gas since the last three years.
00:42 And the new segment which the gas sector has seen is the LNG.
00:48 So now LNG can be transported on trucks and they can be taken to the locations where there is no pipe connections.
00:57 So when there is almost a whole 100% of the country has been given license for city gas distribution, but network still will take some time before it reaches there.
01:09 So this is now a segment coming up and now when LNG is getting shipped to LNG vessels, it comes on the LNG terminals.
01:22 Normally it gets regasified and sent to pipelines.
01:26 Now when it is possible for people to transport it through trucks on the tankers.
01:32 So now this is a new segment and we see that we can also facilitate trade of LNG.
01:38 So for that we had applied to PNJRB for approval that we should be able to launch contracts which we call it a small scale LNG contracts.
01:49 And we launched it after approval from PNJRB on 23rd of April and member PNJRB himself launched it.
01:58 So now this segment is available and we see that and already we have given option for trading LNG at all the terminals which are currently there.
02:10 To start with we will have these trades happening on Dahej and Hazira which is the most popular terminal and where most demand is also coming up.
02:21 So we are launching it on Dahej and Hazira first. We will slowly add more terminals.
02:28 And then we have currently launched the contracts for daily, day and monthly.
02:34 Daily, fortnightly and monthly. So these three contracts we have already launched and we will wait for this segment to expand.
02:45 But I will tell you interestingly that China sees this as a big, already there is a SS LNG is a big segment in China where 12 million ton of LNG is being transported through trucks.
03:03 And it is actually we are calling it as a virtual pipeline. So same thing can happen because in southern part of the country not much internet work has come.
03:14 In eastern part again there is a network has not come. So we see that these segments will become very popular there also.
03:22 And of course locations which are connected through pipeline because now there is another area which is coming up is LNG used in getting used in transport sector.
03:34 So all heavy vehicles may actually move to LNG and they will get a better fuel and they get a better price.
03:43 And government has got a plan to put up 5000 LNG, 50 LNG dispensing station along the quadrilateral.
03:52 And that is the golden quadrilateral and that what we see that that is one use case.
03:58 Second is CGD companies where pipe connection has not come they can use LNG.
04:04 Another area where industries also can use it like industry if they are not connected through pipeline they can also use this.
04:12 But they have to be consuming more than 50000 cubic meter per day because otherwise then they will need approval from their local CGD company.
04:25 Another big case is there where we see that LNG this gas is being produced in marginal fields.
04:32 So like in southern region there are lot of location where they can be produced.
04:38 But there is not so much of prospectivity in terms of tenure like 5 year, 6 year is the period suppose the small well can produce.
04:48 But for that you put up a pipeline, putting up a pipeline is not economic.
04:55 So there also we see a scope that ONGC and other producers can actually liquefy gas there and then sell it to their customer through trucks.
05:06 So we see that all of this will really grow and it will become a big segment.
05:12 The other thing and additional question to this would be the availability of these cryogenic trucks.
05:18 So would you also be facilitating these kind of trucks from these terminals?
05:22 So what we will do is we will get all these transporters who have got these cryogenic trucks and we will panel them with exchange.
05:33 And we will give this option to our buyers.
05:36 So buyers have to make arrangement, they can sign a contract with individual truck operators and then they can have this delivered.
05:44 So initially we will not go into delivery part on our own.
05:49 But we would like that this delivery will be taken care by the buyer.
05:53 They will talk to any truck which is convenient to them in terms of quantity, in terms of boil off or specification.
06:00 And they can do their own arrangement. But later we also will help in doing that.
06:06 One more question on this. How much would a truck be able to carry in terms of LNG?
06:12 And what will be the total requirement on truck basis alone for gas in coming years?
06:18 See we see that normally there is 15 ton trucks are there, 18 ton trucks are there, 12, 15 and 18.
06:27 These are the normal specification.
06:30 And depending on which is the operator, they will provide these options.
06:36 So these are the normal range.
06:38 So we see that today about 180,000 tons of LNG is getting transported.
06:46 So we expect maybe 20% of that may come on the exchange.
06:52 And to in the maybe year 1 and 2.
06:56 And then as we grow, this segment actually today is only less than 1 mm CMD.
07:01 But in next 5 years it is expected to grow to something like 3 to 5 mm CMD.
07:07 Though if you compare with the piped gas, it's not so big.
07:11 But otherwise this segment will have its own potential.
07:14 And later maybe it can turn out to be major segment.
07:18 You also spoke about your proposal to start a green gas certificate.
07:22 Something on the lines of what renewable electricity certificate that we already have.
07:27 So can you tell little more on that?
07:30 See India is now going on a very big drive for compressed biogas.
07:37 See compressed biogas we understand solves many problems with one arrow.
07:43 One is that you are able to use your waste, agriculture waste, municipal waste.
07:51 All of these waste can be used.
07:53 Even pearly which is basically a nuisance that can also be converted into wealth.
07:59 If we use it for producing biogas.
08:03 So one is that you are using waste to produce gas.
08:06 You are replacing imports, high cost imports.
08:10 You save on foreign exchange.
08:12 Thirdly you also encourage rural development.
08:15 Because rural economies will develop with this.
08:18 So CBG is big push for getting both big push from the government.
08:24 And there already government has notified through an order that every CGD company will consume certain percentage from biogas.
08:39 In first year like in first year it will be 1%, second year 2%, third year 3%, and then fourth year it will be 5%.
08:46 So the obligation is going up to 5%.
08:49 Now this CBG is not available uniformly across the country.
08:55 Maybe north Punjab, Haryana it is available more.
08:59 But in western, eastern part it may not be more.
09:04 So but obligation is uniform across.
09:07 So how people can meet obligation?
09:10 What we have planned is that we can create a CBG certificates.
09:14 Since CBG is a green gas, so we can convert the green attribute into a certificate.
09:22 So maybe CBG producer will sell CBG directly to some local buyer.
09:28 He may get a normal price.
09:31 Since CBG is still costly, so that premium what he needs for actually making the case viable, he may receive it through certificates.
09:40 And this certificate can be traded on the exchange.
09:44 We will facilitate trading.
09:46 Now another advantage of CBG certificate is that if somebody is not able to consume gas because it is available elsewhere,
09:55 otherwise he would have asked to sell either through pipeline.
09:59 When somebody will sell through pipeline, there will be transmission tariff.
10:03 So all transmission tariff itself may be costing something like 1 to 2 dollar.
10:08 So all of this can be avoided if you convert that into a certificate.
10:12 Certificate will have a shelf life.
10:14 So you may sell it today, you may sell it after 6 months.
10:17 Once you have certificates in place, then you have option to sell at any time.
10:22 So government is thinking of issuing another guideline where they will specify the elements of the mechanism.
10:34 This element is getting finalized after discussion with many producers.
10:39 We are also part of the discussion.
10:41 And we are very hopeful that government will come out with a very convenient, government is very pushy on this.
10:47 This is the one which actually everyone sees a big scope.
10:51 In India, we plan to add 5000 CBG plants.
10:56 Today we have only 50-60.
10:58 Otherwise plan was that by 2024 itself we will be...
11:04 No, that's one part is Sathar.
11:06 But otherwise this was beyond Sathar also there was a possibility.
11:11 So now this is 5000 plants are getting commission.
11:16 So they are being planned.
11:19 All big corporates, they are now doing this.
11:25 All OMCs are doing, Gale is also involved.
11:28 So all big corporations today are very keen.
11:31 And if you see Europe, Europe today consumes 20 BCM of biomethane.
11:40 And they have plans to go up to 100 BCM.
11:43 You know 1 BCM is... so our consumption is about 60 BCM.
11:49 So almost 20 BCM they are producing now. And they want to go up to 100 BCM by 2040.
11:55 So everyone is very keen because this is something which is indigenous.
12:00 You don't have to depend on anybody.
12:02 India is an agriculture country.
12:05 So we definitely will continue to have a lot of agriculture waste.
12:08 We will continue to have municipal waste.
12:10 So all these raw materials are available.
12:12 You have to just convert into a cash.
12:15 It's only a one time investment that people have to make.
12:20 So how soon we expect this to be a reality?
12:24 By when government is planning?
12:26 Government already obligation will start trigger from next year.
12:31 So 2025-26 that will be the first year when 1% obligation will be there.
12:37 So we are very hopeful that by April 25 we should have something in place.
12:43 Tell us little bit about this increase in volumes if you have seen.
12:49 Because now government has made it mandatory to run all the gas based thermal power plants on full capacity under section 11.
12:58 So have you seen any kind of uptake in overall volumes at your exchange?
13:03 And also which are the power plants where you see this kind of activity already starting?
13:07 See, government with the intention that there should not be any shortage of power.
13:13 They have issued section 11 direction.
13:16 And everyone knows that May and June will be the month which will be very critical.
13:23 So today still we are in April.
13:26 And we see that the demand is going up but it has not gone up to the extent government was expecting.
13:34 So today still we are less than 220 gigawatt.
13:37 So once it crosses 220, 225, 230 probably these gas based power plants will start running.
13:43 So far we have not seen action in sense that they have started continuous purchase.
13:51 But many plants have purchased through exchange.
13:54 One was there are some plants which are running even today in April.
13:59 And NTPC plants are running so they have bought gas for April from us.
14:04 And a few plants which were idling for long time, they actually made their plant ready.
14:13 Because before they were to make it ready, they had to spend some money on this because it was lying idle for long time.
14:24 So that these plants have been made ready.
14:29 And so they are ready to buy gas as soon as this demand comes up.
14:34 And since we have option to trade on weekly basis, on weekday basis,
14:41 so we have all these options open through exchange.
14:44 They know that whenever they need, they can come on the exchange.
14:47 One last question on long term contracts that you are planning, you know, this 12 month contract.
14:53 What is the current status on that? And how soon can we see?
14:56 See, we filed our application about 3-4 months back with PNJRB for getting approval for this new, we are calling it long duration contracts.
15:08 And these contracts are for 3 months, 6 months and 1 year.
15:12 So far we have been doing for 1 month up to 6 months, but people wanted to have 3 months, 6 months as a block.
15:20 And there we also made some change in terms of pricing.
15:25 So today, all our contracts so far have been fixed price contract.
15:30 So you trade in rupees per MMB2.
15:34 But when we wanted to go longer, then we had a requirement that we should have some benchmark link pricing for these contracts.
15:44 So we then signed an agreement, licensing agreement with the S&P Platts,
15:50 because major benchmarks being used by gas sector is Brent, JKM, WIM and all these benchmarks are owned by S&P Platts.
16:02 So if we want to use it, we have to sign a licensing agreement that we have already done.
16:07 So we filed our application with PNJRB having signed this licensing contract.
16:12 So we are ready. PNJRB has started consultation.
16:18 So this consultation process will be over by 30th April.
16:22 So they have asked all the stakeholders to share their comments by 30th April.
16:27 After that, we will again have opportunity to respond to those suggestions.
16:33 And then they will finally decide.
16:36 So maybe after 30th April, probably they will take maybe a month or so to give us approval.
16:43 We are hopeful at least in one or two months.
16:46 So by June, we should be having this approval in place.
16:51 So if you have a 12 month contract and if you are signing a benchmark with S&P for price references,
16:58 so how this will work? What will be the mechanism?
17:01 Is it like if the prices change over, say, six months or eight months in duration?
17:05 So would it be a fixed price contract or would it be like varying over a period of time?
17:10 See, the variation is already taken care by JKM WIMP.
17:14 Because when we say there is a variation, variation is there like JKM today said $10.
17:21 Tomorrow it can go to $8.
17:23 So when you have traded a contract linked to JKM, so if JKM will move, this price will move.
17:32 So basically it becomes a floating price and that floating price will come from these benchmarks.
17:37 So basically you are all hedged.
17:40 You don't have to worry because if you are if you are traded at say JKM plus $1.
17:46 So today JKM is 10. So you will be your contract price is $11.
17:52 Tomorrow if JKM goes to say $15, then your contract price will be 15 plus 1.
17:58 So automatically buyer and sellers, they know that their prices are converging
18:04 or they are matching with the international spot prices.
18:08 One last question. Overall, how do you see the business outlook for IGX?
18:13 What kind of volumes you are expecting for FY25? And also how is it been till now?
18:19 See, last year we saw a bit of dip mainly because we had less of domestic gas coming on the exchange.
18:29 Otherwise, free market gas or what we call as RLNG, that was good volume was there, better volume.
18:36 That grew by 20%. This year we definitely expect much better.
18:42 We expect something like 40% growth overall because we will see more volumes coming from ONGC.
18:50 Because ONGC plans to have 10 mm CMD of production starting by end of this year.
18:57 So they will ramp up their production from say today it is about point less than 1 mm CMD.
19:03 It will go up to 10 mm CMD through the year. So that will keep on coming on the exchange.
19:10 Reliance also will trade a good amount and that's like what they did last year, same way we can expect this year.
19:19 And then RLNG also will grow because prices will soften.
19:23 So prices softening will help us to see demand finally will grow.
19:29 Power sector demand can actually drive the whole demand, whole of gas consumption in the country.
19:37 And that will also help us to expand our volume because they need something which cannot be long term.
19:43 They know their power dispatches only one day before or maybe a week before.
19:49 So they will not be able to buy something under long term or medium term.
19:54 So for them we are best suited. So we are very hopeful that power sector will drive the demand.
20:01 ONGC exchange, CGT sector will drive the demand because this network is expanding.
20:06 And of course there is a normal demand coming from refinery because they also now have moved from their dirty fuels to cleaner fuel.
20:16 So all of these things will help us to expand.
20:19 You said you expect the pricing to soften. So you expect it to soften even beyond $9 and $8. How much?
20:27 So far we were expecting that to happen.
20:31 Now again since prices have gone up because of some events, geopolitical events.
20:37 So there is a likelihood that it will go less than $10.
20:43 But it may not. So nobody knows what will be the price.
20:48 But we hope that before winter at least it should be going to $8 or $7.
20:57 Maybe in winter again it will go back to $10, $11.
21:01 But after 2025 several liquefaction plants will start in US and in Qatar also.
21:12 So that probably will help us to have more gas coming in this sector.
21:17 And then more supply means less of pricing.
21:21 Thank you very much Mr. Medhiratat for talking to NDTV Profit and sparing time to talk to us.
21:27 Thank you. Thank you for giving this opportunity.
21:30 Thank you.
21:31 (Music)
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