B. Pradeep
KSEB Officers’ Association
Background
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LNG terminal being commissioned in Kochi
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Initial capacity 2.5 mmtpa; ultimate capacity 5 mmtpa
Laying of Gas pipeline network in Kochi in final stages
Gas pipeline to Mangalore and Bangalore under
execution
Gas pipeline to Kayamkulam planned
MoU between GAIL and KSIDC for City Gas
distribution etc
GSA between Petronet and Exxon-Mobil for supply of
1.44 mmtpa from 2015; FOB price 14.5% * JCC
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Natural gas in power sector
 Clean fuel
 Lower Carbon footprint
 Seen as “bridge fuel” until transformation to
renewable energy is technically and commercially
viable
 Operational flexibility in responding to sudden
changes in demand
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Suitable as peaking station
suitable for integration with infirm renewable power
 Scope for decentralised plants at load centers
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Opportunities in power sector
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Proposals under various stages include
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1200 MW project at Puthuvypeen
1050 MW project at Brahmapuram
1050 MW Kayamkulam expansion
1200 MW project at Cheemeni
Conversion of 350 MW Kayamkulam Stage I
Conversion of 165 MW BSES plant at Kochi
Total natural gas requirement for these projects will
be around 25 MMSCMD or 6.25 mmtpa – higher than
terminal capacity
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But, Some hard facts
 Inadequate Long term tie-up for LNG supply to terminal
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only for a fraction of the capacity (1.44 mmtpa against capacity of 5
mmtpa)
Price linked to crude oil price (Japanese Custom Cleared crude
price)
Will commence only from 2015
 LNG supply at spot prices
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Price is volatile; presently floating between 12 – 17 US$ per mmbtu
 Thus there is no firmness in quantum or price for the supply at
Kochi terminal
 The situation is entirely different from that at Dahej terminal
(price stability ensured through floor & caps in pricing formula)
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Some hard facts
 Unfavorable commercial conditions
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“Take or Pay” even when LNG becomes unaffordable due to flaring up of
crude oil prices
The technical advantage of “operational flexibility” lost due to inflexible
commercial conditions
 Planning Commissions observations
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By 2016-17 the import dependence of gas is expected to increase to 28.4%
from 19% in 2010-11
Unless the pricing issue is resolved, the scope of using LNG in the price
sensitive power sector is remote
The high prices prevalent in LNG trade in Asia-Pacific region can
potentially kill the goose that lays the golden eggs
Thus in the 12th plan capacity addition of 2539 MW only is planned for the
country as a whole using Natural Gas & LNG, that too as peaking stations
alone (instead of base load stations)
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Increase in Power Purchase cost
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Power procurement cost has abnormally increased in
Kerala in the backdrop of
 abnormal increase in fuel cost (Naphtha, LSHS,
Coal etc)
 de-licensing of generation sector through
Electricity Act, 2003
 Imperfections in market
 revision of operation norms by CERC for central
sector stations and
 No major hydro projects being commissioned
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Increase in
Power Purchase cost of KSEB
(Source: True up orders, ARR&ERC orders and ARR & ERC filings)
Power Purchase & fuel cost in Rs Cr
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Power
purchase
cost VS
Revenue
Rs in Cr
Power purchase cost vs Revenue
Power Purchase & fuel cost
Revenue from tariff and sale
outside
Purchase
cost is
overtaking
revenue
from tariff
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LNG as replacement fuel
 One of the reasons for the above situation is increase in cost of
Naphtha power
 Existing capacity of Naphtha stations
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Kayamkulam – 350 MW, BSES – 165 MW; Total – 515 MW
Annual generation from these stations were restricted between
Zero and 1200 MU against a potential of 3600 Mus
 Conversion of fuel
 Per unit cost will come down - from present Rs 11 to about Rs 7 per
unit (considering crude price of 100 US$ per barrel); but is still
higher than present average retail tariff – Rs 4.38 per unit
 Thus, conversion to facilitate generation at current level could be
beneficial, but any additional generation may be counter
productive
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LNG for new plants
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Energy demand in Kerala for 2013-14 is estimated as 22,117
MU, which is to be met by
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KSEB stations – 6,837 MU; Central Generating stations – 10,236
MU; Small IPPs in Kerala - 196 MU; Traders - 3,628 MU;
Kayamkulam + BSES - 1,220 MU
Total power purchase cost is estimated as Rs 7,083 Crores
The demand is expected to increase to 26,584 MU by
2016-17 and to 32,895 MU by 2020-21
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Additional energy required – 10,778 MU
Additional power purchase cost will be about Rs 9,200 crores if the
additional power is met from new LNG plants (FC Rs 1.5 + VC Rs 7)
The revenue of KSEB for 2013-14 is estimated as Rs 8,000 cores only
Power purchase cost will increase by 130% (at current prices) to
meet increase of 48% in power procurement quantum
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Impact of change in crude price
Kochi LNG price is directly
linked to Crude price
Change in pooled power purchase cost due to change in crude price at
10%, 15% and 22%
Between 2003 -08 the
increase was at 27% and
between 2009-12 the
increase is at 22%
Rs/Unit
Between 2003 and 2012
crude price has increased at
16% annually.
LNG Projects considered are
Puthuvypeen 1050 MW and
Brahmapuram 350 MW
alone
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Risk Mitigation
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Clearly Kerala cannot absorb such costly power in huge
quantum – reducing the quantum is important
LNG plants as peaking stations
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Peak demand is estimated to become 6093 MW by 2011-12
Additional capacity required to meet the peak demand is about
3000 MW; at a plf of 85% LNG plants will deliver about 22,000 MUs
Whereas the additional energy requirement is about 11,000 MUs
only
If capacity to the tune of 1000 – 1500 MW is created or contracted
for base load operation the energy demand could be more or less
met
Such base load stations may be on Coal and balance energy and
capacity may be met from LNG plants
This could limit the exposure on LNG to the tune of 2000 – 3000
MUs
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Risk Mitigation
 Allocation of Domestic Natural Gas
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Kerala not being endowed with any natural resources like Coal,
Natural Gas etc and development of hydro projects is hampered due
to environmental concerns has eligibility to get priority allocation of
domestic natural gas, once gas pipeline infrastructure is in place
Due to price stability to certain extent, Kerala shall seek for domestic
natural gas allocation for power projects on Swap basis
 Gas price pooling
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Pooling the price of LNG with domestic natural gas could bring
down the cost as well as create some stability in price
Kerala shall seek gas price pooling to ensure utilisation of LNG
facilities
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Gas prices in different markets
 Domestic natural gas
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APM gas
Pre NELP fields
NELP fields
- 4.2 to 5.25 US$ /mmbtu
– 3.5 to 5.73 US$ /mmbtu
- 4.2 US$ /mmbtu
 LNG imported in India
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Qatar Gas (Dahej)
Other term contracts
Spot LNG
Gorgon gas (Kochi)
- 9 US$/mmbtu
- 6.97 to 9.06 US$ /mmbtu
- 12 to 17 US$ /mmbtu
- 16 US$ /mmbtu at current crude price
 International prices
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Henry Hub (US)
NBP (UK and Europe)
JCC based (Japan)
Canada
- 3 to 4 US$ /mmbtu
- 6 to 7 US$ /mmbtu
- 14 to 15 US$ /mmbtu
- 3 to 4 US$/ mmbtu
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Kochi Terminal landed in a
disadvantageous position
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The suppliers of Gas to be sensitised on the price
factor
Globally the link between Crude price and Gas price
is being broken (Dr C. Rengarajan Committee report
2012)
Our proposed power projects shall not be tied down
with commercially unviable contracts for gas supply
But the highly urbanised Kerala context provides a
great market for LNG as a substitute fuel through city
gas distribution (domestic & commercial sectors)
network, automotive fuel etc – piped gas
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Looking forward
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Gas based projects has a major role to play in our power supply
landscape
LNG terminal is a game changer – connecting Kerala to the
Natural gas market; ship route as well as pipe route
In view of the present commercially unfavorable contracts for
supply of Gas, Kerala shall cautiously tap the market
The strategies may include
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Seeking domestic natural gas allocation on swap basis
Seeking pooled prices for gas
Limiting exposure to LNG by going for peaking stations initially
Work along with GAIL/Petronet etc to tap North American market
and other potential markets
Gradually move away from the crude price linkage
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THANKS
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