Powering the NationChallenges Ahead

Long Term Fuel Security for Gas Based Generation NTPC Limited Corporate Gas Sourcing
S.D.Prasad, AGM (GS) K.K.Hota, DGM (GS) D.K.Padhi, Sr. Manager (GS) Pankaj Mittal, Sr.Engr. (GS)

IPS 2012

2035: Likely Share of Natural Gas in Power Generation

India
20 15 10 5 0 2007-08 2031-32

16%

10%

World

Source: Integrated Energy Policy, GOI

NG ~ 20% NG ~ 19%

Source: EIA 2010

In Indian Context, for meeting 9-10% growth rate, power generation will necessarily have to be optimally exploited from all available sources viz. Coal, Hydel, Nuclear, Renewable etc. including Natural Gas

Share of Natural Gas Power Generation Capacity In India

Installed Capacity
Gas based capacity Total: 186 GW

17743 MW
Nat. Gas 9.51%

Others 11.44%

Hydro 20.76%

Coal 55.73% Nuclear 2.56%

Source: CEA (As on 31.12..2011)

NTPCs Installed Capacity on Gas in Combined cycle: Own: 3955 MW & Thru JV: 1940 MW

Present Gas/RLNG Availability in India

Gas/ RLNG Availability Source Average Daily Gas availability (MMSCMD) 50.78 Sector wise Gas/ RLNG Consumption Supply (% of Total) 22.7 37 4.8

Sector
Fertilizers Power Sector CGD (Domestic +CNG)

ONGC

OIL
PMT Other JVs

6.63
11.87 3.39

Refineries
Petrochemicals Others

11.9
3.4 20.2

KG-D6
Long Term RLNG Spot RLNG Total

37.0
25.13 21.2 156

Around 60% of the Gas/RLNG goes to anchor customers viz. Power & Fertilizer sectors, as top priority, which are Regulated Sectors
Source: MOP&NG, Data of June 2011

Gas based Generation at NTPC

Total Gas Based Capacity : Gas Requirement @ 90% PLF :
Existing Gas/ RLNG Agreements:
Source/ Supplier APM/PMT Non-APM KGD6 Gas RLNG-Long term Total ONGC/ GAIL ONGC/ GAIL RIL/Niko/BPEAL PLL (Qatar LNG)/GAIL Contracted quantity 14.48 0.82 2.30** 2.0

3605MW ~ 17.35 MMSCMD

Gas figures in MMSCMD
Supplies 2011-12 (till Jan11) 8.39 0.15* 2.00** 1.47 12.01 Contract valid till 2021/2019 2016 2013-14 Dec 2019

*Supplies commenced w.e.f. 18th Nov 2011

**Out of 4.46 MMSCMD allocated by Govt.. Balance 2.16 MMSCMD to be tied up

Domestic gas allocations have been made corresponding to 70% PLF.

Besides, NTPC also ties up Spot RLNG/ Fallback RLNG on RE basis

With these arrangements, NTPC has achieved 100% Fuel Security for its existing Gas Stations Currently, almost NIL Generation Loss on account of shortage of Gas

Issues of Concern for Existing Stations

Depleting Domestic gas (APM/PMT/KG DG) Supplies

Increasing dependence on RLNG

RLNG Prices have increased almost twice in a year

Non availability of Generation Schedule

Loss of Generation due to Grid (2011-12 till Jan12): 6630 MUs

DC & PLF data for NTPC 2009-10 2010-11 2011-12 (till Jan11) For 2011-12:

DC (%)
PLF(%)

90.44
78.51

93.11
72.9

93
69

Total PLF: ~ 69%

Gas 56% , RLNG (LT + Spot)- 13%

Issues of Concern for Existing Stations

Likely reduction in present allocation of domestic gas
Around 10,000 MW Gas based projects (mainly Pvt. Sector) are under advance stage of construction/ commissioning, however without any gas allocation It is apprehended that current firm allocations to existing gas based power stations may be reduced by Govt. in order to allocate gas for upcoming projects in near future

This may further increase the dependence on RLNG

In current scenario, it has become essential to source RLNG at affordable prices to meet the additional gas requirement of existing gas based stations

NTPCs Future Gas based Expansion Projects

NTPC has requested GoI for allocation of 43.375 MMSCMD gas for 8550 MW Gas based capacity addition Considering limited availability of domestic gas in the country, NTPC has further requested MoP to prioritize gas allocation of at least 23.85 MMSCMD for four gas based expansion viz. Kawas II ,Gandhar II , Kayamkulam Stage II & Badarpur Gas totalling 4700 MW

MoP has already recommended to MOP&NG for consideration of EGOM for allocation of gas (@ 70% PLF) for following three projects :
Kawas Expansion Gandhar Expansion Kayamkulam Stage-II Total 1300 1300 1050 3650 MW MW MW MW 4.85 MMCMD 4.85 MMCMD 3.92 MMCMD 13.62 MMCMD

Government decision in this regard is awaited

Issues of Concern for Future Projects

Tie up of Domestic Gas
Domestic Gas projections in country in near future are not very optimistic Although there is huge natural gas demand, Price affordability remains an issue particularly for LNG There is a challenge to bridge the demand-supply gap

NTPCs identified gas based expansion projects score very high on the criteria set up by MoP for allocation of domestic gas CPSUs like NTPC can not proceed ahead for investment approval by the Board for implementation of these projects without domestic gas allocation

Sourcing Gas for Future Power Projects

Priority Allocation for Power Sector
Fertilizer can be imported by producing it at very competitive prices in Gas rich countries. However, Power can not be imported Since there is a direct subsidy for Fertilizer sector, management of subsidy is easier for Fertilizer sector as compared to Power sector

Recently, Inter-Ministerial committee on policy for pooling of natural gas prices has also recommended for preferential allotment of domestic gas for core sectors i.e. Power & Fertilizer sectors

Prior Allocation of Gas for Future Gas Projects

As per present policy of Govt., gas for new gas based projects will be allocated, subject to availability, when the projects are ready for commissioning Investment decision by CPSUs like NTPC can not be taken because of uncertainty of gas allocation There is a risk of non recovery of fixed cost if assets remain unutilized

Tie up for bridging the gap

NTPC has recommended that ratio of domestic gas to RLNG for Power sector should be 80:20 Inter-Ministerial Committee on Gas Price Pooling has recommended that Power sector on the basis of existing schedule of gas based power plants coming up, will need to source around 27% of their requirement from R-LNG by 2016/17 Sourcing this RLNG at affordable price is an issue

Sourcing Gas at prices affordable for Power Sector

Exploring unconventional Gas
WEO 2011 estimates that the share of production of unconventional gas (Shale gas, Coal Bed Methane, Gas Hydrates, tight gas) is expected to increase two-fold globally

Unconventional gas in US currently accounts for 50% of total gas production

International Energy Outlook 2011 Reference case projects a substantial increase in unconventional gas supplies-especially in United States & also in Canada and China.

Natural Gas Production/Consumption Trend (in trillion cubic feet)

Production trend

Consumption trend

Source: International Energy Outlook 2011

There may be surplus in some regions and if R/P ratio remains stable, Prices may not become too high. Surpluses are likely to find way in demand regions, like India & China.

Sourcing RLNG at prices affordable for Power Sector

Shale gas is a game changer is US ( around 23% in 2010)
Assessment of Shale Gas resources across the globe are under way As per IEO 2011, remaining recoverable resources of Shale Gas in 33 countries including US is 6622 tcf As per IEO 2011, two group of countries appear to have good prospects
Countries which are highly dependent on natural gas imports & have substantial Shale gas resource relative to their current consumptions ( France , Poland ,Turkey, South Africa, Ukraine, Chile, Morocco)

Countries which already have considerable natural gas resources & also Shale gas resource (more than 200 tcf)- like US, Canada, Mexico, Russia, China, Australia, Libya, Argentina, Brazil

According to the preliminary studies carried out by the US EIA in April, 2011 India has technically recoverable Shale gas resources of nearly 63 tcf GoI is working on developing suitable Shale Gas exploration policy on priority In view of increasing E&P activities for Shale Gas in other countries, there is an opportunity to import this as LNG in India at competitive prices

Affordable RLNG- Henry Hub linked LNG Contracts

Recently, GAIL (India) Limited has signed a Sales and Purchase Agreement (SPA) for supply of 3.5 MTPA LNG for 20 years with Sabine Pass Liquefaction, LLC, a subsidiary of Cheniere Energy Partners, L.P, USA. Supplies will start in 2017 and can be extended up to 10 years Pricing of this LNG is linked to Henry Hub

Currently, Henry Hub price is around USD 3.0 /MMBtu. At these levels, it is understood that this LNG will be available at relatively lower price as compared to LNG with conventional crude linked formula
Henry Hub being quite stable over long periods means any pricing benchmarked with Henry Hub appears a good strategy

Henry Hub linked LNG Contracts

Trend of Brent Crude Spot vs Henry Hub & Japan LNG CIF

18 16 14 12 10 8 6 4 2 0

USD/MMBtu

Henry Hub Brent Crude Spot Japan LNG CIF

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

GAILs deal would encourage other LNG sourcing companies in India to try for similar contracts with US suppliers

NTPC has an opportunity to source a part of this LNG for its future expansion projects

2010

Future Henry Hub Prices

U.S. Energy Information Administration (EIA) has come out with a report which assess how specified scenarios of increased natural gas exports could affect domestic energy markets in US In the report, four scenarios of export-related increases in natural gas demand have been considered as provided by DOE/FE Under the High growth / Low Shale gas production case, the Henry Hub price in 2035 is projected to be around $9.75 per MMBtu Other elements which are to be considered for Future Henry Hub Projections are : Global LNG trading volumes Various uncertainty elements Macroeconomic considerations

Sourcing Gas at prices affordable for Power Sector

Scenario assumptions: Global Shale gas resources are quite substantial. (EIA / Oil & Gas Journal) Unconventional gas is likely to be explored and produced. R/P ratio remains fairly stable as per the prevailing trend of increase in global gas reserves. Henry Hub is more likely to remain less volatile in correlation with crude. US Government favorably approves RLNG exports to Non-Free Trade countries. The global macroeconomic indices move more or less, on expected lines

In view of above assumptions withstanding the test of time, RLNG from US is likely to find its way in India This might also result in easing premiums on RLNG from Middle East Either way, India may end up importing gas as RLNG

Development of LNG Regasification Terminals

To source additional RLNG in the country, more LNG terminals are required Development of number of LNG Regasification terminals in the country is a good sign for Indian gas industry

Efforts need to be made for timely commissioning of these terminals

Faster development of Pipeline Network

There exists regional disparity in terms of access to available gas in India. Pipelines shall help in penetration in Industrial and Commercial markets. Govt. is contemplating development of National Gas Grid cutting across length and breadth of the country

Majority of pipelines under construction are lagging behind their schedule

Govt. should ensure timely development of domestic gas fields to ensure timely development of pipeline network Further, it is necessary to establish the gas pipeline networks prior to arrival of gas. This would help establish the market by unleashing the latent demand

Domestic Gas Pricing

At present, domestic gas price is based on market discovery basis & formula is linked to Crude oil price. e.g. Formula for KG D6 Gas Price Gas price = 2.5 + (CP-25)^0.15 + C (in US$/MMBtu in NCV basis) where, CP = Crude price in US$/barrel, with cap of US$ 60/barrel & C =Zero Recently, Inter-Ministerial Committee has recommended to have a Reference price for future gas price discovery as Average between the Henry Hub (US) prices and Asia Pacific LNG netback price However, at present, there is no true market in India, which is still evolving. Consumers are buying marginal RLNG at high prices of around UD$1820/MMBTU. Does it mean that it is the Market Price??

Domestic Gas Pricing should be reasonable commensurate with associated risks

Gas price should be determined/ approved by Independent Regulator

Other Issues
Transportation Tariff
In present Zonal-postage transportation tariff, the customers at far end of the pipeline have to bear significant Transportation charges Transportation charges should be reasonable so that there is uniform development of Gas based stations across the country

Open Access
We need to have multiple suppliers & consumers having access to Trunk pipelines in a transparent process Non discriminatory necessary Open Access is

Inter-Ministerial Committee on Pooling has recommended a Hybrid System

Gas Transportation business should be totally segregated from Gas Sale business, as it is being followed in Power sector between Power Sale & Transmission activities

Optimization in Tax Regime

Waiver of Customs Duty on LNG Declared Goods status for Gas/ RLNG as also endorsed by the InterMinisterial Committee on Gas price pooling

Gas Regulations
PNGRB Act may be amended for greater role of the Regulator for the entire gas sector
Regasification tariffs to be in the purview of Regulator Open Access for RLNG terminals be made available on non-discriminatory basis

Thank You

Increase in Gas/ RLNG Prices

Example: NTPC Dadri
APM/ PMT 2010-11 (April- Jan) 2011-12 (Apr-Jan) 2.86 (till May10) 5.84 KG- D6 LONG TERM RLNG SPOT RLNG

Delivered Gas Price (US$/ MMBtu)

6.97

11.29

13.00

6.97

14.12

23.30

2010-11 (Apr- Jan)

FCOG (Rs/KWh) 2011-12 (Apr- Jan)

1.22

2.96

4.79

5.20

2.48

2.96

5.99

9.90

Prices of APM & KG D6 Gas are due for revision in April 2014

NTPCs Identified Future Gas based Projects

Sl. No. Project Nominal Capacity (MW)
NTPC 1. 2. Kawas Stage II Gandhar Stage II 1300 1300 6.6 6.6

Gas Requirement (MMSCMD) @ 90% PLF

3.
4

Badarpur Gas Stage III

Auraiya Stage II

1050
1050

5.325
5.325

5
6.

Anta Stage II
Faridabad Stage II

1050
1050

5.325
5.325

7.
8

Dadri Gas Stage II

Kayamkulam Stage II Sub Total

700
1050 8550 Through JV 2100 10650

3.55
5.325 43.375 10.65 54.025

1.

Ratnagiri CCPP Stage-II Total

Future Domestic Gas Availability

In MMSCMD

2012-13 ONGC* OIL** 55.04 8.16

2013-14 55.01 9.58

2014-15 57.58 10.80

2015-16 61.98 11.00

2016-17 91.09 11.00

Pvt JV***
Total (Domestic) Imports (LNG)

61.15
124.35 73.00

83.50
148.00 101.20

101.78
170.00 101.20

104.40
177.38 156.40

107.00
209.29 184.00

Expected Total Availability

197.35

249.20

271.20

333.78

393.29

Source: 12th Plan Sub Committee on P&NG {*} & {**} Projections as per ONGC &OIL {***) Projections as per DGH - Above projections excludes gas sources like Shale Gas, Gas Hydrates etc - LNG availability has been assumed matching with regasification capacity creation

Future Demand Projections

Demand including present supplies (In MMSCMD)
Sector
Power Fertilizer City Gas Industrial Petrochemicals/ Refineries/ Internal Consumption Sponge Iron/ Steel Grand Total Demand

2012-13
135 62 15 20

2013-14
153 110 19 20

2014-15
171 113 24 22

2015-16
189 113 39 25

2016-17
207 113 46 27

54
7 293

61
8 371

67
8 405

72
8 446

72
8 473

Source: 12th plan Sub Committee on P&NG