Never underestimate the challenge of developing LNG infrastructure

However, when FID was taken, there were expectations of long term and spot pricing, and the time required to make brownfield demand centres gas ready. For various reasons, those boundary conditions are not all as per expectations today.

Getting predictions right in the commodities space is notoriously hard and global events usually offer a curve ball that requires dealing with.

The ongoing Russian conflict, coupled with the pandemic, changed the LNG trade dynamics considerably in the short term as several upstream projects were delayed and more volumes are pointed presently at Europe.

Indian LNG demand, which is met about 50% by spot, has been affected by the higher prices as the Indian customer is price sensitive.

In the short term, demand could be dampened but the mid to long-term outlook remains robust. Local factors have also played a role in influencing the demand-supply balance.

Converting industries to switch to gas in eastern India has taken longer than planned and rights of way for pipelines in certain areas in eastern India have taken longer to come through, delaying the efforts at network creation.

At the same time, merchant terminal developers have opportunities to create value. “As an example, if receiving infrastructure is developed in a manner that allows a wide range of vessels to berth and allows LNG to be stored and re-exported, then reloading services and break-bulking could become a business opportunity. Sufficient storage could allow a terminal to attract users who see arbitrage as an area they want to play in – via time swaps and re-export options,” he said.

Mr Singh noted one area deserved focus, “Regas in my opinion, is now also an opportunity to differentiate from other terminals by considering injection of hydrogen, cold chain developments and using environmentally appropriate technologies such as Shell tube vaporisers in Dhamra.” He added small-scale LNG should also be considered – distribution via road trucks and bunkering is another value-added service.

When asked to comment on the fundamentals for success, he noted a ‘one-size-fits-all’ approach could not work as each project is uniquely designed with its own set of techno-commercial realities, with the economic landscape driving a diverse range of outcomes.  At the same time, he offered some generic observations that could help:

• It is relatively low-cost expenditure to invest pre FID in ensuring via an appropriate design that the risk emanating from the design of a terminal is ALARP.
• The same goes for designing the right project execution strategy with well thought out criteria for contractor and subcontractor selection, payment schedules, incentives, scope etc. Without this, driving contractor performance is going to be very difficult.
• Project economics should be stress-tested across a range of business outcomes to ensure robustness. This is particularly important when addressing lender and shareholder requirements. While the wild market fluctuations of 2020-2022 may not happen every time, they should serve as a pertinent reminder of how much and how quickly the market can change.
• Accept that timelines for obtaining regulatory approvals may not always be in the developers control. Preparing thoroughly for obtaining the same and providing float in the schedule helps.
• Community action can eventuate at short notice, often without warning and for factors that you did not really contribute to. Having an open, transparent and helpful stance with the community helps blunt the impact.
• Timing the completion of accompanying infrastructure (dredging and towage on the marine side, pipeline and demand centre readiness on the downstream end) is crucial. Influencing these may not always be possible but can have a significant impact on project completion and IRR.
• Preparing a team to handle commissioning and operations well before you get to that point is a big enabler. There are several areas which could fall in ‘no-man’s land’ if one does not step back to refocus well ahead of mechanical completion. Training and certification, operational permits, insurance, vendor visits, maintenance of spares etc are aspects that came into sharp focus. Creating a parallel team over a year before MC to start looking at commissioning and operation aspects was a great help in managing the project.

LNG infrastructure is increasingly interconnected and benchmarked across all options available. Accordingly, Mr Singh said, “It was very important for us to ensure we remain competitive and resilient across a wide range of economic outcomes and are confident of creating considerable value for shareholders in the years ahead”. He added, “This should not be a cause for complacency - we are working on additional ways to create value which include expansion and providing value-added services,” he concluded.

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