Policy
Crude Oil Prices Range- Bound Now, Surge Depends On Venezuela
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VAT On Petroleum, Extraordinary PSU Dividend A Way Out
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Rising Crude Oil Price Not To Affect LPG Subsidy Scheme
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Oil Marketing Companies’ Upstream Business Fails To Take Off
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Mergers And Acquisitions In Petroleum Sector Move Slowly
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Regulation
OVL Will Need $115-135 Billion For Priority Plays Overseas
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Denied A Role In LNG Business, HPCL Seeks To Be King In LPG
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TAPI Gas Pipeline Project Shows Sign Of Life
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Declining Consumption Of Kerosene And Naphtha
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Alternative Energy / Fuel
After Jatropha Plant, IIP Turns To Used Cooking Oil
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New Projects
HPCL To Finalise 10 Licensors For Rs 431-Bn Rajasthan Refinery
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Vedanta Limited Awarded 41 Exploration Blocks In India
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IOCL To Expand East India’s First LPG Pipeline
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Market Watch
HPCL To Target Overseas Markets For Lubricants
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India To Have 10,000 CNG Stations By 2030
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Companies
Wavefront Technology Solutions Inc
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PJ Valves Selected For North American LNG Project
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Cairn Oil And Gas Plans To Invest $2.5 Billion To Boost Output
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CCI Slaps Record Fine On South Asia LPG
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Press Release [FREE Access]
Petro Intelligence » Why A Long-Term LNG Supply Deal With US Makes Sense

by R. Sasankan

My assertion in my previous article The Changing Dynamics Wrought by US LNG that there is now a distinct possibility that the US gas producers can sign a long-term (20-year) deal to supply LNG at a price between $5 - 5.5 per million British thermal units, inclusive of the regasification cost at the Indian coast if the negotiations were transparent and proper, has had a great impact on reader interest, gauging by the number of visitors to the Free Access column. Driven by this enormous reader interest in this article, I decided to cull more statistics to back up my assertion that such a long-term gas deal with the US was now within the realm of possibility.

It is important to be sure of your facts and figures, else the debate can turn into a vacuous exercise. Let me digress a bit while I try to drive home the point why it is important to make sure that there are adequate resources in the ground to support pie-in-the-sky dreams. Back in the 1990s, a proposal had suddenly surfaced for an Oman-India offshore gas pipeline, which had the blessings of the Government of Oman but was marketed by a controversial Dutch citizen known to be a wheeler-dealer who enjoyed tremendous clout in that country. This worthy had influential contacts in India’s Ministry of Petroleum and Natural Gas who successfully persuaded then Prime Minister P.V. Narasimha Rao to pursue the plan because it was feasible and would be immensely beneficial to India.

On the day that Rao was to leave for Oman to witness the signing of a Memorandum of Understanding (MoU), the Indian Express carried a report under my byline stating that Oman did not have exportable surplus gas to sustain such a pipeline for such a long period. Back in those days, Prime Ministers went overseas with a large entourage of journalists. During a press conference on board the flight, Rao referred to the report in the Indian Express and termed it as a “discordant note” in the media. The MoU was signed. Not long after, Oman developed cold feet and backed out of the plan, saying that it did not have enough gas reserves for such a big pipeline project.

The purpose of recalling this incident is to emphasise the point that I do not intend to hoodwink readers with some far-fetched idea that borders on the sensational. I carried out some research by collecting data from the most reliable sources such as Energy Information Administration (EIA) of the US and BP before broaching the subject.

At the outset, let me make it clear that EIA and BP data are not comparable. The differences arise because BP goes by dry gas with a stated calorific value of 40MJ/Cubic Meter but the EIA estimates typically include Natural Gas liquids. For instance, the EIA estimates US gas reserves at the end of 2016 at 341 Tcf while BP estimates them at 307.7 Tcf which is identical to the number given by EIA for dry Natural Gas.

Just 10 countries in the world account for almost 80% of the global proven gas reserves. In fact, the top 5 countries -- Russia (18.1%), Iran (17.2%), Qatar (12.9%), Turkmenistan (10.1%) and the US (4.5%) account for about 63% of global reserves. The next five are Saudi Arabia (4.2%), Venezuela (3.3%), UAE (3.1%), China (2.8%) and Nigeria (2.7%) (Source: BP).

Based on EIA data, as of end 2016, the US gas reserves including natural gas liquids were estimated at 341 Tcf including 210 Tcf of shale. The share of shale gas in the total production was about 62% in 2016 (Source: EIA). Proven reserves grew by about 5% in 2016 in the US. On a dry gas basis, the EIA estimated US gas reserves at the end of 2016 at 307.7 Tcf -- the same number put out by BP.

Given the relative sizes of the countries named above, one should conclude that US is not a natural exporter of gas and would find it hard to compete with the likes of Russia and Qatar. However, North America (USA and Canada) is home to some 15% of the global shale potential and leads the world in shale gas technology. This potential is almost evenly spread between the US and Canada. China too has about the same shale gas potential as the US and Canada put together but China suffers from a severe water shortage which limits its ability to effectively tap into this potential unlike North America. In fact, over half of the global shale potential is unlikely to be tapped (with available technologies) given that it exists in highly vulnerable, arid and water stressed areas/countries. This puts the North American shale potential in its proper perspective. (If one includes Mexico, the North American shale potential is even higher. But Mexico also suffers from severe water scarcity as do parts of the US).

The US shale revolution has really unlocked a tremendous resource base. EIA expects the low cost gas production from the US to increase gas supplies by 20 Bcfd by 2025 which will require approximately $ 170 billion of investment in pipeline and export infrastructure.

Energy experts familiar with the US scene feel that it is time for India to tie in some 60-100 MTOE of gas import from the US through a long-term deal tied to a particular field/company. Take for instance, a company like Tellurian which is building a natural gas business that includes 27.6 million tons per annum of production from Driftwood LNG on the US Gulf Coast, trading of LNG cargoes and the development of new markets globally. Tellurian’s chief executive Meg Gentle is on record stating that his company’s cash cost of drilling, production and transport to markets will be approximately $ 2.25 per mBtu. He is confident of producing LNG for a cost of $ 3 / mBtu, FOB US Gulf Coast when Driftwood LNG begins operation in 2023. Acquisition of natural gas producing asset is integral to the company’s business proposition. Tellurian is understood to have identified India as a potential market for its LNG.

Energy experts say Indian companies should invest in the field and associated infrastructure of one such company instead of wasting time with Farzad-B block in Iran. This window will not be available for ever as the natural market for US LNG will be Europe. However, chances of kickbacks are minimal, if not zero, and the deal will have to be transacted on purely commercial terms. But that could be a problem for some of India’s energy experts.



To download the latest issue 'Volume 25 Issue 11 - September 10, 2018', click here
Petro Intelligence [FREE Access]
LNG Terminals: A Minefield Of Risks
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IOC Mulls Options To Break Logjam Over Iran Stake In Chennai Refinery
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Why A Long-Term LNG Supply Deal With US Makes Sense
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The Changing Dynamics Wrought By US LNG
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Foreign Investment
Shell To Buy Out Total In Hazira LNG & Port
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Shell To Invest In 1,200 Retail Stations
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Overseas Investment
Bidding For New Oil And Gas Fields In Myanmar To Commence Next Year
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Gas Scene
Updatew: Existing Gas Pipeline Network, Gas Pipelines Under Execution
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India’s sectoral consumption of natural gas in July 2018 and net availability
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Domestic Natural Gas Scene : July 2018
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Gas pipeline network update
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An Update : Capacity Utilization of LNG Regasification Terminals
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Domestic Gas Prices & International Gas Prices
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Roadmap to setting up a functional Gas Marketing Hub in India
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Domestic Gas Scene In totality In Last 3 Years
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Month-Wise, Sector-Wise Consumption of Domestic Gas, R-LNG 2017-18
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LNG imports have consistently increased over the years
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15% Share of Gas in Primary Energy Mix – What it Translates to
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Salient Features of LPG Profile In Fiscal 2017-18
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Approved LNG Export Facilities
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Update: CGD Factsheet as of April 2018
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Important terms in pricing of petroleum products
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Story of India’s Petroleum Products Surplus
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OIL’s International Footprints
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IOC: Blocks’s Location, Reserves & Production and Recent Acquisitions
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Oil India Litd.’s assets and reserve base
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Share of taxes in RSP of Diesel (Delhi) as on 1st June 2018
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Share of taxes in RSP of petrol (Delhi) as on 1st June 2018
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IOC’s Present Petrochemical Projects and Capacities
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Weightage of Crude Oil, Natural Gas and Petroleum Products in Wholesale Price Index (WPI)
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IOC: Major Ongoing Projects and its Capex Plan for fiscal 2018-19
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Oil demand & supply
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ONGC’s Acquisition Of Oil & Gas Assets In Last 5 Years
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Break-up of Petroleum Products Consumption Data (PSU and Private)
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Power Deficit Situation Region-Wise In July 2018
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India’s Petroleum Products Import Declines In July 2018
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India’s Crude Import Registers Impressive Growth in July, OPEC Share Declines
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Update: Gross Refining Margins (GRM) of refineries ($/bbl)
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Specific energy consumption (MBN number) of PSU refineries update
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ONGC’s Investments largely financed from internal accruals
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Petroleum Products Import Goes Up In June 2018
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Crude Oil Imports Dip In June 2018, OPEC Share further Declines
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Imported Crude & Domestic Crude Oil Processing
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High Sulphur (HS) & Low Sulphur (LS) crude oil processing
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ONGC’s Oil and Gas Discoveries In Fiscal 2017-18
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For Better Appreciation of Pricing Of Imported Crude
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Customs, Excise Duties, GST Rates On Petroleum Products
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Update: Profit After Tax (PAT) of oil companies
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Status of blocks under NELP (as on 1st April, 2018)
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Tenders [FREE Access]
ONGC
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Vedanta
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Vedanta
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