Bloomberg: India May Double Gas Imports by 2007, Shell, Petronet Say: “Liquefied natural gas producers including Royal Dutch/Shell Group and Exxon Mobil Corp. may double sales to India by 2007 as economic growth boosts demand for the fuel in Asia's third-biggest energy market” (ShellNews.net) 14 Feb 05

Feb 14 (Bloomberg) -- Liquefied natural gas producers including Royal Dutch/Shell Group and Exxon Mobil Corp. may double sales to India by 2007 as economic growth boosts demand for the fuel in Asia's third-biggest energy market.

Sales may rise to 10 million tons a year, worth about $2.2 billion, over the next three years, according to Petronet LNG Ltd., India's sole LNG importer, and Shell, which plans to start up a rival terminal by April.

India is raising gas imports to fuel an economy that grew 8.5 percent last year, the fastest pace since 1989. The country may build as many as five new LNG terminals in the next decade, according to Petronet, increasing competition with China, which plans seven import terminals to meet its own energy shortage.

``We have orders for the entire 5 million tons of production and there's appetite to absorb five times more,'' Petronet's Managing Director Suresh Mathur said in an interview on Feb. 9. ``LNG will have a dominant share of India's gas supplies.'' Petronet began selling the fuel in April.

Qatar's RasGas Co., partly owned by Exxon Mobil, plans to increase annual sales to Petronet LNG to 7.5 million tons a year from 5 million tons a year, Mathur said. Shell plans to start importing 5 million tons a year through its terminal by April, it said last month.

India wants natural gas to account for a fifth of its energy usage by 2025, from 9 percent now, to reduce pollution.

India's gas production of 74 million cubic meters a day -- equal to about 32 million tons of LNG a year -- lags potential demand of 120 million cubic meters a year, the government has said. Consumption may rise if more factories switch to gas because of near-record oil and coal prices, analysts said.

Price

``India's gas demand is far higher than what the government anticipates,'' R.K. Pachauri, director at New Delhi-based Tata Energy Research Institute, said. ``Gas will be the fuel of the decade for the country.''

Steel Authority of India Ltd., the nation's biggest steel producer, last week said it will use 3.56 million cubic meters a day of gas -- equal to about 940,000 tons of LNG a year -- starting next year as part of a plan to lower coal purchases by one million tons a year. National Thermal Power Corp., which generates a fifth of India's electricity, will use 3 million tons of natural gas to fire 2,600 megawatts of new capacity it plans to add by 2007.

The pace of the gas market's development may depend on the price of the fuel. Indian Farmers Fertilizer Co., the nation's largest state-owned producer, has said it won't pay more than $3.5 per million British thermal units for the fuel, a third less than the $5.5 paid by users in Japan at present. Petronet LNG charges $4.40 for its gas.

``Indian buyers continue to want prices that are lower than world rates,'' said Andy Flower, an LNG consultant based in Surrey, England. ``There's a lot of demand from the U.S., China and Europe, which means LNG prices will remain tight. Matching rates charged by Petronet may be difficult.''

Market Entry

Competition from Iran and local gas producers that pipe the fuel to users without the cost of liquefying it may persuade suppliers to keep prices low to gain entry to the market.

Reliance Industries Ltd., which made the world's biggest gas discovery of 2002, has agreed to sell 3 million tons of the fuel to National Thermal at $2.97 per million British thermal units starting in 2007.

Indian Oil Corp. and GAIL (India) Ltd., two of the nation's biggest state-owned energy companies, plan to import 7.5 million tons of LNG from Iran for 25 years starting 2009. Iran has the world's second-largest gas reserves after Russia.

``There's a window of opportunity for LNG to secure market share before local gas is brought to market,'' said Praveen Martis, an energy analyst at the U.K.'s Wood Mackenzie Consultants Ltd.

RasGas has said it will cut the price it charges Petronet if consumers get better rates from competing LNG suppliers. Meantime, potential gas buyers aren't waiting for the piped gas to come to market, Petronet's Mathur said.

Utilities and factories are switching to gas from naphtha, which is more expensive, he said. Four percent of the nation's 107,972 megawatts of generating capacity runs on naphtha.

``LNG is costlier than local gas but is at least 40 percent cheaper than naphtha and other liquid fuels,'' Mathur said. ``People have begun to realize that.''

To contact the reporter on this story:

Ravil Shirodkar in Mumbai at rshirodkar@bloomberg.net.

To contact the editor responsible for this story:

Reinie Booysen at rbooysen@bloomberg.net.

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