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Interview: AG&P eyes FID on $200 mil Indian LNG project by mid-2018

Atlantic, Gulf and Pacific Company is planning to make a $200 million final investment decision on its Karaikal LNG import project in Puducherry, India, by mid-2018, according to Karthik Sathyamoorthy, AG&P's President, LNG Marketing.

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The facility is due to start operations in mid-2019 with an initial capacity of 1 million mt/year, which could be expanded to 2 million mt/year within three years and 3 million mt/year by 2024, Sathyamoorthy said in an interview with S&P Global Platts.

With this move, AG&P is joining a number of international investors looking to capitalize on India's huge LNG demand growth potential, supported by soaring downstream consumption, government policies aimed at reducing the country's dependence on coal-fired power, and an expanding LNG and gas distribution infrastructure.

India's gas transmission network is expected to double in size in the next three years to 29,000 kilometers, bringing access to gas - primarily imported LNG - to the country's east and south, which currently account for only 20% of national use.

NEGOTIATING FLEXIBLE SUPPLIES

The company is now working towards signing sales and purchase agreements with international LNG suppliers, and developing regional downstream gas markets in central Tamil Nadu's industrial hub.

"Commercial negotiations are at a very advanced stage with multiple LNG suppliers," Sathyamoorthy said, adding that LNG may be supplied by a single seller or several of them.

AG&P's priority is to secure sufficient contractual flexibility and a pricing mechanism that closely reflects international LNG market fundamentals.

"The market is evolving; from the traditional buyers to the new buyers, all of us want flexibility and a price that reflects market value," he said. "Those are the two key components of our current discussions."

Asked about potential price indexations, Sathyamoorthy said: "As an aggregator, we want to hear what our customers want."

DEVELOPING DOWNSTREAM DEMAND

The Manila-based company has signed an exclusivity agreement with Port Karaikal to develop the LNG facility, and a separate exclusivity agreement to supply part of the imported LNG to Chennai-based private electricity utility PPN Power.

Approximately 0.35 million mt will be supplied to the utility's 330 MW power plant near Karaikal port. In operation since 2011, the power plant's planned expansion to 1,410 MW has been delayed on limited domestic gas resources, according to PPN Power.

The remaining 0.65 million mt of the LNG terminal's capacity will be available to supply power and gas demand in the industrialized region of central Tamil Nadu, which has major manufacturing clusters for the fertilizer, cement, steel, textile, leather, sugar and garment industries.

"AG&P is working on the downstream markets to develop demand from industrial customers and the fertilizer industry," Sathyamoorthy said.

"AG&P's innovative approach will establish Karaikal as a major gateway for distributing LNG, CNG and gas quickly and efficiently to customers throughout the region. Leveraging its standardized designs and modular approach to building terminals developed in AG&P's Houston, Texas Engineering Center, AG&P not only eliminates expensive, bespoke engineering costs, but significantly reduces construction time. This means the terminal will be up and running by mid-2019," said Sathyamoorthy.

A second LNG terminal is also expected to be completed in Tamil Nadu in 2019. The large-scale 5 million mt/year Ennore LNG facility is led by IndianOil and will be located 300 kilometers north of Karaikal.

THE INFRASTRUCTURE

AG&P's $200 million project includes a floating storage unit, an onshore regasification facility and a 4 km pipeline connecting the terminal with GAIL's existing Cauvery Basin gas pipeline network, Sathyamoorthy said.

"With this demand profile [1 million mt/year] you cannot have a large onshore terminal," he said. "Hence, we have looked at a fast-track terminal, at the lowest capital cost to support growth in the downstream market."

AG&P has already obtained approval for the construction of the pipeline and is also considering delivering smaller LNG quantities by truck, depending on demand.

The company is open to allowing third-party access to the LNG terminal, Sathyamoorthy added.

AG&P received environmental approval for the terminal construction in May. It expects front end engineering design or FEED to be completed in the next two months, and project FID within four to six months.

-- Abache Abreu, abache.abreu@spglobal.com

-- Edited by Wendy Wells, newsdesk@spglobal.com