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Gas and LNG Overview - LNG Review 2005
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Shardul Thacker
Mulla & Mulla & Craigie Blunt & Caroe
Dipti Rambhia
Mulla & Mulla & Craigie Blunt & Caroe
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Originally printed in:
LNG Review
- 2005
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The most distinguishing feature of energy being transported by LNG carriers is its flexibility, compared with transportation through power transmission cables, coal by wagons and oil/gas by pipelines
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Transporting LNG
The most distinguishing feature of energy being transported by LNG carriers is its flexibility, compared with transportation through power transmission cables, coal by wagons and oil/gas by pipelines. Gas can only be commercially transported through pipelines, but in its gaseous state is very voluminous. Technology has been able to liquefy gas, compacting it to 1/600th of its gaseous volume. Transporting gas over long distances in its liquid state at economic levels can only be carried out by LNG carriers. Pipeline transportation is more expensive, politically unviable and often logistically unfeasible. Pipelines also have limitations of geographical jurisdictions. Carriage by LNG tanker is therefore an effective solution to bring remote gas fields to the market. LNG vessels resolve this geographical vulnerability.
LNG Policy
The Directorate General of Shipping has issued guidelines on the chartering of LNG carriers (5th July 2004). Currently, the guidelines provide that licenses will be granted to carriers for the import of LNG only if the vessel is an Indian flag vessel or if the Indian partner owns the LNG vessel wholly (or owns not less than 26% of the ownership of the company owning the said LNG vessel). In such a case, owners will have to submit an unconditional undertaking to convert the vessel into an Indian flag vessel within one year after the introduction of the tonnage tax regime ((TTR) introduced in the last financial budget effective from 1st April 2004 and has been elaborated in detail).
If the guidelines are kept in abeyance, the choice of carrier would lie with the LNG supplier against freight on board (FOB) terms, required by current guidelines. The Government’s aim is to promote Indian tonnage in general and LNG tonnage in particular. The important features of this policy are:
- owners to submit unconditional undertaking to convert the vessel into an Indian flag vessel within one year after the introduction of tonnage tax;
- licenses would only be granted to Indian flag vessels or unless an Indian partner owns the LNG vessel wholly or not less than 26% of the ownership of the company owning the said LNG vessel;
- the LNG vessel that is granted license on longterm charter would have to employ a minimum of two Indian officers, one on the engineering side and the other on the deck side;
- the LNG importer may fix the vessel on an onthe- spot basis provided that the total cargo carried on such spot vessels does exceed 10% of the total annual imports during the financial year for each project/regasification terminal; and
- the technology should be transferred to the Indian partner, so that within five years from the date of registration of the subject LNG vessel, owned by the transporter and used for the transportation of LNG to or within India, the vessel would be owned, managed and operated by an Indian partner through Indian crew/personnel.
However, these guidelines were subject to the introduction of the TTR as opposed to the corporate tax regime, which was prevalent in India.
Relaxation of the LNG Policy
The Port Meterological Officer (PMO) has recommended a modification in the guidelines issued by the Director General (DG) of shipping for the granting of permission for the chartering of LNG vessels for import and coastal trade. The PMO has requested that the Ministry of Commerce prepare a cabinet note in consultation with the Ministries of Power, Petroleum and Finance on the issues of relaxation of the DG guidelines, placing them at abeyance for three to four years, and the mode of contract.
TTR and its Impact on LNG Vessels
Tonnage tax is a nominal tax based on the gross tonnage of a company’s fleet. In other words, a nominal tax is paid based on the tonnage, irrespective of the profit or loss registered by the company.
Categories:
LNG
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Overview & Strategy
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