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Interview

with A.K. Balyan, MD & CEO, Petronet LNG

10.12.2010 / Energyboardroom

India has a vast demand for natural gas, guaranteed for the long term; the problem, historically, has been a lack of supply due to poor infrastructure. Given the demand, why have Indian companies taken so long to begin heavily investing in the LNG market?

Initially, major companies operating in India believed that they would be able to find sufficient gas reserves within the country; but we quickly realized that the demand was growing much too fast for the indigenous gas to be adequate. Therefore, all of the big players started to think of how to bring in more. A unique initiative that the government took was to incorporate Petronet Energy, in effort to bring together four major, public, government-owned companies in the oil sector to start a new business in a field where the country had no real experience, technology, or expertise. This was in 1998. The four companies—ONGC, Indian Oil, BPCL, and GAIL—came together, and to have access to the necessary technology, GDF SUEZ was taken as a strategic partner. And—again, very uniquely—the Asian Development Bank provided international support, in an exhibition of their keenness to participate in major energy projects.

If you look back at the last 8 years or so, Petronet LNG has done pretty well: we have the biggest re-gasification plant in the world, and, if I’m not mistaken, we have been awarded the largest LNG sourcing contract as well—and we are looking at certain other initiatives to maintain that leadership position. The company is also starting to develop novel technologies, using our own teams: for example, using hot air as a part of the re-gasification process, which is much more cost-effective according to our calculations and studies.

I think that with the successful incorporation of the company, and the initiative of the government, we became more confident that Petronet LNG could bring in additional gas through long-term contracts without problems, that we could operate a high capacity plant, that we could transport the gas (we have not had a single default in the last 8 years)—and we became confident that we could trust this source of energy. That’s why the decision was taken to construct yet another LNG terminal, at Cochin in the south of India. I think that initially the government, and the players, took time to decide, but now we have come to the realization that LNG is a practical, doable, viable, and suitable solution to the gas gap in India.

In the Netherlands, the main challenge for LNG and other energy projects have been the very high environmental standards in the country. In Russia, the challenges have been related to financing, and an overabundance of red tape. What are the main challenges for your LNG projects in India?

First of all, I don’t think there is any red tape problem in India now, because Petronet LNG is a government-sponsored initiative. We have perhaps only one issue, which is that we need to have cost-effective contracts: Petronet LNG needs to have reasonably-priced and affordable gas, to make it available to a billion people—and that is a challenge. The world gas scenario is very volatile, and filled with uncertainties. So one thing we are working on is to have sustainable, long-term contracts, at reasonable price levels, to be able to import and bridge the gap between demand and supply.

The international LNG market is indeed quite volatile; many companies that were previously investing in this sector are taking one step back. How has the volatility affected Petronet LNG? And what is your view of the contradiction between the unmet demand for LNG in India, and the seeming over-supply available throughout the world?

I believe that the gas scenario worldwide—and particularly the LNG scenario—is very complex. You see a large number of capacities being added up. We’ve already seen Qatar, with 77 million tons, being added up; Australia, in the next 5 years or so, will add up another 10-15 million tons, perhaps becoming the third or fourth largest country for LNG; Nigeria has got potential; and etc. So we see that worldwide, there is this over-capacity. But at the same time, I don’t think that prices have quite come to the very low levels that you would expect with over-supply. This is because many of the countries that are major exporters are really trying to hold on, to sustain this phenomenon. The major consumers will remain China and India—and, of course, the three major LNG buyers: Japan, Korea, and Taiwan.

For the coming time, there will be a little uncertainty in the LNG market. Prices should remain a little depressed, because the demand is not picking up: in Europe and the U.S., for example, it’s almost flat. With this kind of over-supply situation, I don’t think that prices will move up. I see that, particularly in India, the scenario should help the market to arrive at a competitive gas price.

As you mentioned before, Petronet has built the world’s largest—and Asia’s first—LNG receiving and re-gasification terminal, and you are expanding it even further. What have been your main milestones and achievements at this terminal, in recent years?

First, I should mention that we are sitting in a unique location, where there are markets all around. There is an ever-better network of pipelines available. And, we have the world’s largest producer, Qatar, close to us. So all of this has helped us to create a uniquely functioning terminal there.

As far as our achievements: we have been able to demonstrate that large contracts can be appropriately executed over a period of time—as I’ve said, there has not been a single default, so far. This shows that we have a world-class terminal, and we go about handling and managing it in a very professional manner (and we actually manage the facility with a much leaner team than some others). From an expense point of view, Petronet LNG has constructed the facility in an extremely cost-effective way. Construction was also completed in a very short period of time, if you look at world standards.

How did you manage to achieve such high standards of efficiency and technology, when Petronet LNG and its comprising companies were relatively new to the LNG business?

We had tremendous support from our fore-promoters—who had sound basic knowledge of the oil industry—and initially we took a good number of people from them. Secondly, Petronet LNG has an emphasis on training people, and re-training people, and exposing them to the new technologies that we produce, and to our company work practices. Lastly, we engage in rigorous monitoring of everything we do. I think that all of that put together has helped us achieve our world-class standard.

Petronet LNG consists of an international player, and four local partners. Many international companies in India feel that the best way—and perhaps the only way—to enter the Indian market is through local partnerships. What is your advice to foreign players who would like to enter the market in this country? Do you believe that, as in the case of GDF SUEZ and Petronet LNG, international players must seek local partners?
I think that it is perhaps the time to collaborate worldwide. Striking out on one’s own may not be a suitable thing to do, today. I believe that given the kind of challenges that currently exist in the oil and gas industry, companies are coming forward to forge partnerships at a rate that was not thought possible years back—whether it is for ultra-deep-water drilling, or competitors coming together to examine feasible technology, and even cost-sharing. So collaboration is becoming a natural thing to do.

Secondly, local companies—for example, Indian companies—have a tremendous amount of knowledge base, which I don’t think any new company entering the market would or could have. It is always good to collaborate with a company that has much more knowledge, data, and understanding of the local issues, local geology, local regulations, etc. And locals are also already comfortable working in their own environments. So such partnerships are not only a natural, but perhaps a much better way, to work—not only in India, but anywhere in the world.

Partnerships are certainly fruitful in this industry, especially in long-term projects, where companies can share risks and garner interesting opportunities together. Recently, Petronet LNG partnered with Exxon-Mobil to bring Australian resources to India—and Indian companies are, more and more, searching for resources abroad, in order to guarantee supply in the wake of the growing demand. How would you frame Petronet LNG internationalization process, and how would you portray the company as a partner of choice in international markets, as well as in India?

I think Petronet is perhaps entering a different phase. Having performed effectively for the last 8 years, we are looking at what other opportunities we can work on, whether they are inside or outside the country. Opportunities to diversify in certain areas; opportunities to forward-integrate, to backward-integrate. Again, Petronet LNG has the strength of our shareholders, because many of them are operating worldwide; it is a good idea for us to collaborate with them on international opportunities.

And we have a wonderful relationship with several major foreign companies, particularly in the LNG business (Exxon, for example); and it would be natural for us to look for opportunities in collaboration with them—again, worldwide.

I think Petronet LNG is now ready to open up, and look for opportunities in the baskets that are available for an LNG operator in adjoining areas of business, and work on that. Direct marketing, for example: there are huge opportunities for supplying gas in this country, in areas where pipelines cannot go. Secondly, power: a natural area for us to look into, particularly because India has a huge need for power. Similarly, to get access to equity gas, by moving forward in upstream along with our own promoters, or with some outside companies. Also, LNG infrastructure: we are looking to participate in building such infrastructure in the country, and outside.

If you could envision where Petronet LNG will be in the next five to ten years, what, ideally, are your ambitions?

Petronet LNG is in the process of evaluating our performance, and debating what we should be looking at in the next couple of years. We are intensely deliberating our business strategy for 2020—and as part of that, defining our goals, and our timeframe for achieving them. Offhand, I can only say that there is a great amount of enthusiasm to achieve certain targets that have been discussed, and we hope to present them to our board in the next board meeting: for example, doubling our volumes in the next 5-7 years.

Do you have a final message for the international readers of Oil & Gas Financial Journal, who are your potential partners worldwide?

In a country like India, which has a huge gas business market, it would be beneficial to collaborate with Petronet LNG, to capture some of those opportunities. And the early movers do have the advantage. We see that Petronet, as an early mover in LNG, has that advantage. So we would look forward to opportunities to collaborate both inside and outside India with any major player, on a long-term basis.

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