Gazprom in talks with IndianOil for Ennore LNG terminal stake
New Delhi   06-Dec-2012

The Russian government-owned OAO Gazprom is in talks with IndianOil for acquiring a stake in the 5 million tonnes per annum (mtpa) liquefied natural gas (LNG) terminal planned at Ennore near Chennai.

Gazprom, the world’s largest explorer of natural gas, is interested in the `4,320 crore terminal that is to be developed as a joint venture between IndianOil and Tamil Nadu Industrial Development Corp. Ltd (TIDCO).

“Talks are on between Gazprom and IndianOil for a stake in the Ennore LNG terminal. Gazprom is setting up a huge liquefaction facility at Sakhalin. It wants a gasification facility in India to cater to the growing demand here,” said a person aware of the development who spoke on condition of anonymity.

The terminal is planned at Ennore Port in Tiruvallur district of Tamil Nadu. IndianOil plans to invest `56,200 crore during the 12th plan (2012-17), of which `3,592 crore is earmarked for diversification.

IndianOil chairman and managing director R.S. Butola said he was not aware of Gazprom’s interest but didn’t rule out a partnership. “It hasn’t come to our level. We are talking to Gazprom for sourcing LNG for the Ennore project. We are open to partnerships. Whether it will be Gazprom or others has to be decided.”

A Gazprom spokesperson declined to comment.

A TIDCO spokesperson said the company wasn’t aware of an approach by Gazprom but added that it was “just an associate partner” and that IndianOil didn’t have to inform it on “bringing in a new partner for the LNG Terminal at Ennore”.

Indian Oil, the nation’s largest refiner, is diversifying its business as there are limited growth opportunities in the oil retailing business. State-controlled refiners such as IndianOil continue to sell fuel below cost and are not sure about the extent to which they will be compensated by the government or when.

Natural gas is shipped as a liquid and is reconverted at LNG terminals. India has only two functioning LNG regasification terminals. They are located in Gujarat and are owned by Petronet LNG Ltd and Shell India. IndianOil in a consortium with GAIL (India) Ltd, Bharat Petroleum Corp. Ltd (BPCL) and Oil and Natural Gas Corp. Ltd (ONGC), already owns a stake in Petronet LNG. India currently has around 16 mtpa of LNG regasification capacity.

The country is facing a fuel scarcity as gas production from the Reliance Industries Ltd’s D6 field has dropped. According to the petroleum ministry, the country’s natural gas production was 130 million standard cubic metres per day (mscmd) of gas in 2011-12, a 9% decline from the previous year because of falling production of gas in the D6 field. The future for new power projects looks bleak as the projected gas production in the current fiscal is expected to be only 118.3 mscmd.

Gazprom accounts for 17% of the world’s total natural gas reserves and for around 70% of gas reserves in Russia. Gazprom Marketing and Trading Ltd (GM&T), a unit, has been engaged in LNG trading and marketing in Asia Pacific since 2009. It inked an agreement with GAIL for 2.5 million tonnes of LNG supply per annum for 20 years, starting in 2018-19. Last year, GM&T also signed an accord with IOC to supply 2.5 mtpa of LNG for 25 years from its projects such as Sakhalin.

JP Morgan Russia Equity Research in a report dated 8 November based on a conference call wrote, “Gazprom said up to 40% of its domestic contracts with energy and industrial companies expire by year-end and are being renewed right now....Gazprom believes contract enforceability remains low for the monopoly as well as for the independent players (Rosneft, Novatek) due to government’s initiatives during the crisis years, which remain in effect today. We see the high churn ratio of the contracts as an opportunity for the continued market share rebalancing, as Gazprom itself sees its domestic position as domineering.” IndianOil also recently signed an agreement with Korea Gas Corp. for “joint participation” in areas such as developing “natural gas infrastructure projects and LNG sourcing”.

Gazprom was earlier present in the Indian hydrocarbon space when it was awarded a block along with GAIL in the first new exploration and licensing policy (Nelp) round that was held in 1999. However, the block was eventually surrendered in the backdrop of a dispute between the companies over payments.

IndianOil operates 10 of India’s 22 refineries and has a 30.8% share of the nation’s 213.18 mtpa refining capacity.