The Indian government intends that natural gas will become a far bigger proportion of the mix of domestic energy consumption in the future. Currently, gas (both imported and produced) forms just over 6% (or 58 Bcm for the year 2017-2018) of the energy requirement, with recent government policy statements envisages this to rise to 15% by 2030.
Source: BP Statistical review of World Energy 2018
Major investment in production from offshore gas fields (see below) is one element in the official plans, but is insufficient to meet demand.
Intergovernmental talks have been going on for years on major gas pipeline projects (from Oman, from Iran via Pakistan) but the progress has been snail-like. There are major geopolitical considerations which are impeding progress. So, the keystone to the policy is intention is to fill this energy gap by extending significantly LNG imports. Historically, Qatar has been the predominant supplier.
With the present LNG import of around 20 MMt/a, India is world’s fourth largest buyer, after Japan, South Korea and China. The plan to raise the share of natural gas will require a vast increase in imports and construction of more LNG terminals.
Diversifying sources of LNG imports
In 2012, state-run gas marketer Gas Authority of India Ltd (GAIL) signed a 20-year agreement with Russia’s Gazprom for the purchase of 2.5 MMt/a LNG. In June 2018, the first LNG cargo from Russia was delivered to the Dahej terminal in Gujarat.
Supplies have also started from the U.S. In March 2018, Cheniere Energy announced that it had a 20-year LNG supply to GAIL from the Sabine Pass liquefaction facility. The agreement for the supply of 3.5 MMt/a was signed in December 2011. GAIL’s Chairman stated that “GAIL is one of the foundation customers of Cheniere, having signed the contract in 2011. With supplies commencing from the U.S., GAIL will have a diversified portfolio both on price indexation and geographical locations”. LNG contracted by GAIL under the long-term deal with Cheniere Energy is priced at 115% of Henry Hub prices plus a fixed cost of US$ 3 / MMBtu. GAIL has also contracted to buy 2.3 MMt/a over 20 years from Dominion Energy’s Cove Point liquefaction facility.
Over the last three years, GAIL and state pipeline authority Petronet have reworked contracts with suppliers from the Middle East, Russia and Australia, reducing the negotiated price and increasing delivery flexibility.
At present, India has four LNG receiving terminals. All are on the west-coast: Petronet has a 15 MMt/a terminal at Dahej, and a 5 MMt/a terminal at Kochi; Shell has the 5 MMt/a terminal at Hazira; Ratnagiri Gas and Power operates the 5 MMt/a Dabhol terminal.
According to government spokesperson Narendra Taneja, the plan is to build no fewer than eleven new LNG terminals over the next seven years, to increase the import capacity to more than 70 MMt/a.
One of the first of these is expected to be commissioned later this year: Indian Oil Corp Ltd’s (IOCL) Ennore terminal in the south-eastern state of Tamil Nadu. This will be first LNG terminal on the east-coast and will have a capacity of 5 MMT/y.
In July 2017, construction work started on Dhamra LNG terminal on the east-cost in the state of Odisha. Dhamra will be the second LNG terminal on the east coast, and will have an initial capacity of 5 MMt/a which may be doubled to 10 MMt/a. Some 3 MMt/a will be used by IOCL, 1.5 MMt/a by Gas Authority of India Ltd (GAIL) and the remaining capacity will be available to other industrial users. The project, expected to be in operation by 2020-21, is being developed by Adani Group (50%), IOCL (39%) and GAIL (11%). The terminal will be connected to city gas and industrial customers with a 2,540km pipeline, including the metropolis of Kolkata.
The construction of Mundra LNG import terminal on the west-coast is reported to have been completed and the plant is expected to come on-stream by late 2018-2019. The project, which has a capacity of 5 MMt/a, is a JV of the Adani Group and Gujarat State Petroleum Corp Ltd (GSPCL). The pipeline connection to the terminal will send out gas to Gujarat’s main grid, critical for commercial operations.
The state-run Hindustan Petroleum Corp Ltd (HPCL) has formed an equal JV with Shapoorji Pallonji Port Pvt Ltd to build a 5 MMt/a capacity LNG terminal at Chhara Port on the west-coast. In addition, the Jaigarh LNG terminal in Maharashtra is being constructed by Hiranandani Energy, which has signed a contract with a US-based firm that wants to bring its own gas through this terminal.
Operations are also underway at existing facilities to enhance their output. While Shell at Hazira and Petronet at Dahej are planning to double the capacities, the completion of a breakwater project at Dabhol, along with pipeline connection at the Kochi, will see the Dabhol terminals operate at maximum capacity.
An aggressive approach to raise domestic production – the deep-water Krishna-Godavari Basin to be the key
With emphasis on importing more LNG from new sources, and investing in developing infrastructure, state-run ONGC and a major private player Reliance Industries Limited (RIL) are investing heavily in the deep-water Krishna-Godavari (KG) Basin.
RIL and JV partner BP announced in June 2017 that contracts will be awarded to progress development of the ‘R-Series’ deep-water gas field on the KG-DWN-98/3 (D6) deep-water block. This is first of three planned projects (Satellite and MJ-1 discovery being the other two projects) that are expected to be developed in an integrated manner, producing from about 3 Tcfg resources (in place or recoverable). Development of the three projects, with total investment of around US$ 6 billion (INR 40,000 crore), is expected to bring a gas production from this acreage to 1 Bcfg/d, ramped up over 2020-2022.
In March 2016, ONGC approved the Field Development Plan (FDP) for Cluster 2 on the KG-DWN-98/2 deep-water block, for a project cost of US$ 5 billion. The project is expected to produce cumulatively around 183 MMbo and 1.5 Tcfg, with peak production of 78,000 bo/d and 529 MMcfg/d. ONGC expects to bring first oil and gas from this project to market by late 2019. Cluster 2A’s peak production is pegged at around 78,000 bo/d plus associated gas (105 MMcfg/d), while Cluster 2B’s peak output is touted at 450 MMcfg/d.
In terms of consumption of the domestic gas, ONGC and RIL have started discussions with potential industrial customers in west India to supply them with gas expected to come on-stream in the next three years from the Offshore KG Basin. RIL is reported to be offering contract durations of three, five, and ten years. The companies are planning to use Reliance’s 1,375km pipeline which was built in 2009, connecting Kakinada in the east of the country to Bharuch in the west. The pipeline has been operating under-capacity in recent years due to a decline in production from RIL’s D1-D3 field in the KG Basin.
The government’s serious attempt and planning of a move towards increasing the use of natural gas in energy consumption is surely a path in the right direction. Backed by not just the financial commitments but also making use of technology from the likes of BP in the KG Basin, can certainly deliver results. However, in the past, execution of such effective plans has seen some delay in the country. But given the already vast middle classes grow in numbers, and consumer demand rises, execution of such plans will be crucial for India’s growth story.
I get this question a lot. The short answer is that “we can contribute to these endeavors in a big way”. Why does that matter to you as a producer who uses our traditional tools?
The oil markets trade is, on average, 20 to 30 times the number of barrels produced every day. Yep. The virtual market is 20-30 times larger than the physical market. What happens when we cannot predict supply and/or demand very well? We are blessed with spikes and cursed with troughs. Think about it. A 1.5% perceived oversupply in crude oil in late 2014 drove a 75% decrease in crude oil prices.
These folks are Very Important People. Their actions drive whether or how much we can borrow. Predictable, transparent markets make for low-cost financing. Turbulent, unpredictable markets make for high-cost or no financing whatsoever. If you, as a producer, have not hedged in the past, it is almost guaranteed you will hedge, at least somewhat, in the future, either virtually or really.
Forward WTI Futures Curves
The chart above is an interesting one. It is the forward WTI Futures Curves for today (in white), a week ago (in blue), a month ago (in red), and a year ago (in orange). What’s interesting is how the market’s forward view of oil supply has changed over time. A year ago, the market thought 2020-2026 would show an increasing price of crude. This stayed steady through four months ago. Then, the long-term outlook for oil began to fall, with an anomaly one month ago, but since then it has stuck to the floor established four months ago.These markets are getting even more complex as electric cars move from rich-folk virtue signals to the mainstream. We could always depend on the market 20 years from now being 25% bigger. We cannot say that now. Too many things are changing simultaneously. We think we can bring better clarity and transparency to these markets.
Think about Drillinginfo’s Pattern Recognition Technologies (PRT) division. PRT uses a novel approach leveraging machine learning and AI to predict load AND “renewables” supply. The funny part is that they haven’t done any pattern recognition in years, because the dynamics of the business mean that NO day is like a past day.
Think about it. There is more and more “rooftop” solar. More and more windmills. On any particular day, an unknowable number of windmills will not be functioning mechanically along an unknowable part of the supply line. Likewise, predicting the weather next month, next week, tomorrow, or next hour is the very definition of “unknowable.” And yet, PRT has, by far, the best predictive rates of gaps in the supply/demand and price for these. It allows us to avoid brownouts and blackouts and wasted energy generation. Our data scientists and experts are working on applying these novel tools to natural gas demand/supply and pricing to allow producers to arbitrage differentials. If we can achieve similar benefits in insight in this market as we have for the renewable electricity market, it will be a game-changer. This is VERY important to the pure-play Marcellus players. It’s going to be very important to you.
Imagine solving the boom and bust cycle of global energy – it’s really nothing less than that. That will be a TRUE contribution to this industry we have all devoted our lives to, letting us improve the global quality of life WITHOUT blindly destroying capital and lives subject to blind and powerful markets mistaking lights at the end of the tunnel for headlights.
Many organizations within the global commodity trade rely on Excel for building and maintaining forward curves. While Excel is great for many things like data manipulation, it lacks the version control, data integration, and the straight-through processing capabilities required for efficient curve building.
Much of the sophisticated logic required for effective curve building, such as calendar and term logic, bootstrapping of overlapping data points, and leveraging various types of interpolations for data gaps, requires home grown non-standardized logic which typically requires the aid of a specialist. Spreadsheets quickly become complex and difficult for other consumers or managers within the organization to understand or support – not to mention the inefficiencies associated with a spreadsheet distribution model.
A curve automation tool, such as MarketView’s MarketView CurveBuilder, can simplify the curve building experience and provide all decision makers with the ability to easily develop, test and automate the generation of simple or complex curves.
Main Benefits of Using a Curve Automation Tool Over Excel
• Built-in term/calendar support
• Built-in bootstrapping and interpolations
• Curve schedule manager and dashboard
• Complete revisions history of each curve
• Over 350 data sources available out of the box (including proprietary data)
• Define custom roll rules
• Curve visualization/consumption in other products such as desktop platform, spreadsheets, or downstream systems
• C/ETRM automation
Move away from Excel and try a free trial of MarketView CurveBuilder for a transparent, easy-to-use, and auditable application that can vastly improve your forward curve building experience.
Thoughts? Comment below.
The crash in crude oil prices, distress at traditional electricity utilities and other industry woes are having an impact on the technology spending practices of energy trading firms. Budget constraints are now viewed as the number one IT challenge facing energy companies, according to the 2016 Energy Risk Energy Trading and Risk management (ETRM) software survey.
CHALLENGE: Budget Constraints
Consultants interviewed for a recent Energy Risk article estimate that IT budgets in the energy industry are on average 20–25% lower in 2016 than last year, in line with overall spending cuts, with some oil and gas companies cutting by as much as 35%. At the same time, regulatory requirements and a challenging economic environment are placing more demands on the IT function than ever before, say consultants and chief information officers (CIOs). Almost 29% of respondents deemed budget constraints the biggest IT trial of the last 12 months, ahead of other major headaches such as data integration, the processing of nonstandard structured transactions and connectivity between different ETRM systems.
CHALLENGE: Integrating Data from Multiple Sources
The integration challenge today is mainly around internal customized integration – integrating data from multiple sources, be it from pricing systems or multiple ETRM systems. Typical challenges would be to integrate the ETRM system, particularly legacy systems or in-house custom build, with downstream risk engines, optimization tools, data warehouses, enterprise credit solutions and general ledgers. IT departments are not only involved in creating solutions for business processes, they are also being held responsible for making sure those solutions are cost effective and valuable. Total Cost of Ownership (TCO) is identified as the top, overriding issue for data managers, and the ability to integrate is a main corporate priority.
MarketView’s Data Integration Solutions Answer Business, Economic, and Regulatory Concerns.
Application vendors are rising to the challenge with more out-of-the-box integration risk functionality that provides open application programming interfaces (APIs), data mapping and connectivity configuration.
With MarketView’s Data Integration Solutions, MarketView customers benefit from seamless data integration. Accessing internal and external data across an organization from a single source results in tremendous efficiency, consistency, and reduced risks. Powerful API solutions facilitate the access and integration of mission critical market data to an organization’s important downstream applications. In addition, transparency around access and usage further reduces risk and alleviates regulatory pressures. Data integration improves accuracy, timeliness, quality and transparency of information with all involved departments receiving the same streamlined data in real-time.
Thoughts? Add a comment below.
Energy Risk editors recently sat down with Mike McSpedon, Marketview’s Head of Sales, to discuss the challenge of managing multiple large data sets in energy commodity markets. Here is an excerpt from the interview. Click HERE to read the article in its entirety.
Energy Risk: Are you finding that more of your clients are using analytics across multiple large sets of market data – what some might call ‘big data’ – to increase profitability?
Mike McSpedon: Yes, which makes having a streamlined, consolidated approach to data management even more important. Marketview allows organizations to replace many non-compatible applications and spreadsheets with one front-to-back solution to improve communication between departments. In addition, our flexible integration capabilities allow organizations to feed downstream business intelligence systems, or commodity and energy trading and risk management systems with high-quality fast data. Marketview provides greater control over data as an enterprise asset and allows traders, analysts, IT and risk managers to communicate effectively and base their decisions on the same information.
Energy Risk: How has Drillinginfo approached enterprise data management in a different way from other vendors in the energy and commodity space?
Mike McSpedon: Marketview has redefined market data management by providing a single platform that bridges the front, middle and back office, which ensures that traders, analysts, IT and risk managers speak the same language and base decisions on the same information. This approach helps organizations simplify data access and management, reducing risks and costs. Marketview also provides greater control over data as an enterprise asset by ensuring seamless integration with Excel and business-critical downstream systems.
Instead of many data sources being accessed by many vendor solutions at many integration points, Marketview provides a single golden source of data and a single solution that integrates with all downstream systems. All users across an organization benefit from a common framework and familiar set of tools, providing for better collaboration and more timely and accurate decisions.
Energy Risk: In view of the downturn in energy and commodity markets, what key factors do you attribute to the continued success of the Marketview solution?
Mike McSpedon: Firstly, as organizations attempt to rationalize their operations under difficult market conditions, Marketview’s streamlined approach to market data management helps customers consolidate and replace resource-hungry systems with its minimally invasive software-as-a-service-based (SaaS) technology. Marketview’s delivery of data allows organizations to access, analyse, share and act upon the full range of business-critical information. This is something that is particularly important in current markets.
With many traders, analysts, IT and risk managers using Marketview’s data visualisation and analytical tools, organizations not only achieve a cost saving, but also benefit from reduced risk, better collaboration and better buy-in across all departments.
Continue Reading: Grappling with big data: Market data management in energy trading systems