Energy firms Royal Dutch Shell Plc and GDF Suez SA signed two in-principle agreements with the government of Andhra Pradesh and GAIL (India) Ltd to start a floating liquefied natural gas (LNG) terminal at Kakinada deep water port, not far from the oil and gas deposits of Krishna-Godavari (KG) basin.
The two foreign energy firms signed a terminal company agreement with Andhra Pradesh Gas Distribution Corp. Ltd (APGDC) to build a floating storage and regassification unit at an initial investment of Rs.1,800 crore.
APGDC is a joint venture between GAIL subsidiary GAIL Gas Ltd and AP Gas Infrastructure Corp. Ltd, a special vehicle floated by the state government to tap gas deposits.
APGDC, GDF Suez and Shell will have 48%, 26% and 26% stakes, respectively, in the project, according to the terms of the agreement.
Kakinada port was selected because of Hope Island, a tadpole-shaped landmass off the coast that protects the town and port from cyclones, tidal waves and tsunamis in the Bay of Bengal.
The floating storage and regassification unit will have a peak capacity of 5 million tonnes per annum (mtpa), with a provision to double the capacity, the state government said.
GAIL, Shell and GDF Suez also signed a second trading pact to source gas and market regassified LNG from the terminal. They will have 48%, 26% and 26% equity, respectively.
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“A floating storage and regassification unit-based LNG project is the fastest and most cost-effective way to secure energy supply while bolstering sustainable development and simultaneously cutting down on pollution,” Andhra Pradesh chief minister N. Chandrababu Naidu said in a note.
B.C. Tripathi, chairman and managing director of GAIL, said he expects the project to be operational in 18 months.
“There are massive reserves of gas in KG-D6 and we need to realize this will be the only LNG terminal on the east coast. So, if this project is successful and is completed in 18 months, it will be the best example of a PPP (public-private partnership) project,” the state’s infrastructure, energy and investments secretary Ajay Jain said.
Gas-based power plants of Reliance Power Ltd, GVK Power and Infrastructure Ltd, GMR Infrastructure Ltd and Lanco Infratech Ltd have been struggling because of poor supply issues. Reliable gas supply, hence, becomes crucial to generate power at these plants to meet the energy requirements of a state like Andhra Pradesh, which is relying on industrialization to revive its economy.
Jain said the terminal will give a fillip to gas-based industries in the state.
“Natural gas is emerging as a significant fuel for economic development of the country and this LNG terminal will surely play a far-reaching role in making natural gas available to various consumers in industrial, commercial and domestic sectors,” Naidu said.
