India's NTPC eyes LNG deal with Iran

Nov 24, 2008 01:00 AM

State-owned NTPC Ltd, India's largest power generation utility, is in talks with Iran to buy 5 mm tpy of liquefied natural gas (LNG), attempting to secure gas supplies for its fuel-starved projects. As part of the proposed gas supply contract, NTPC has offered to set up a Rs 4,000 crore 1,000 MW power project in a joint venture, or JV, with Iran and export that power to India through an undersea link to help its JV partner earn revenue.
"The Iranian partner for the power project will be a government-owned entity. In the beginning of negotiations, NTPC had proposed a 50:50 joint venture... NTPC is also in talks with National Iranian Gas Export Co. for securing a 5 mm tpy LNG contract," an Iranian government official said in New Delhi.

NTPC's proposal comes as Iran faces more economic sanctions by the US and its allies over its nuclear programme, which Washington suspects is aimed at developing nuclear weapons and Teheran says is designed to produce electric power. India and the US recently reached a historic civilian nuclear deal.
NTPC's total gas requirement is 17 mm cmpd, but it has been able to source only 10.5 mm cmpd.

The company is looking for gas blocks overseas in an effort to find fuel to power its plants in India with a total capacity of 3,955 MW, but has been unsuccessful till date. In addition to this, it also has a 1,480 MW gas-based power plant through a joint venture. This gas-based capacity is working at 50 % efficiency due to fuel scarcity.
India imports 3 mm tpy of gas bought in spot markets, which is sourced by Petronet LNG Ltd (PLL) and Shell India Pvt. LNG is transported in liquid form by ship and needs to be converted into gas before it is used. NTPC has been looking at acquiring or setting up LNG terminals.

"An undersea link for power transmission is an extremely costly proposition and one has to do detailed feasibility study to take a view on it," said a Delhi-based power sector analyst. "However, NTPC is good at putting up power projects. They should set up this power project for Iran's own domestic consumption and get LNG on a reciprocal basis. This is a good model from the energy security perspective,"
The firm's plan to source gas from Nigeria for its projects in India has faltered because of delays in finalizing an alliance with a local partner. According to ministry of petroleum and natural gas estimates, India currently needs 180 mm cmpd of gas, while supplies are around 81 mm cmpd. The ministry has projected that the supply-demand mismatch will persist till 2012.

Even as NTPC moves towards the gas deal, infrastructure projects to be developed by Indian companies in Iran have run into trouble. The West Asian nation has threatened to call off talks with Ashok Leyland Project Services, part of the Hinduja Group, and sign a contract with a Chinese firm to build a rail link in Iran because of differences with the Indian company over project execution.
The $ 7.4 bn Iran-Pakistan-India pipeline project is also expected to fall through, with Iran planning to move ahead with or without India.

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