India's new LNG import terminals will face major challenges due to price sensitive demand, ICRA said in its latest update on gas utilities sector.
"Crowding of regasification terminals could put pressure on utilization levels, regasification charges and returns of new entrants," says ICRA (formerly Investment Information and Credit Rating Agency of India Limited).
"Despite high domestic demand-supply deficit, the demand for Regasified-Liquefied Natural Gas (R-LNG) in the country is critically dependent upon the prices of liquid fuels and global spot LNG prices," Icra said.
Gas demand is expected to increase to 330 million standard cubic meters per day (mmscmd) by 2024-25, while domestic natural gas production will rise 60 per cent to about 150 mmscmd.
The increase in supply will come from the likely commencement of Gujarat State Petroleum Corp’s Deen Dayal block and state-run ONGC’s KG basin blocks along with marginal increase in Mukesh Ambani-led Reliance Industries’ KG basin production and other sources, ICRA said in its latest report on Indian gas utilities.
A key challenge for the new terminals is their ability to tie up LNG supplies through long-term contracts at competitive prices and the competition faced by RLNG from liquid fuels.
The risk related to tie up of LNG is partly mitigated by the fact that the global LNG supply demand balance is expected to ease from FY 16 onwards. Besides, for terminals planning to operate on tolling basis, the ability to achieve optimum utilisation of terminals through long-term commitment of booking slots of terminals by gas marketers would be critical from credit perspective.
Overall, the ability to complete the projects in a timely manner without material cost and time overrun and to tie up with the LNG suppliers as well as RLNG customers or to book the optimum capacity on tolling basis would be key risks for the regasification segment, where the competition is expected to increase significantly over the longer term.