India testing waters in LPG ship-building

8 January 2018

After an unsuccessful attempt to build liquefied natural gas (LNG) carriers locally, the Centre’s policy managers are turning their attention to another cryogenic segment — constructing liquefied petroleum gas (LPG) tankers at domestic shipyards.

“It’s at a very early idea generation stage,” said a government official briefed on the plan. “The discussions are driven by the market because the demand for LPG is rising in India, making it one of the world’s largest LPG import markets after China and Japan.”

State-run sponsors

The idea was flagged off at a high-level meeting called by the government in December to discuss a long-term perspective for shipping infrastructure development.

Two State-run firms — Shipping Corporation of India Ltd (SCI) and Cochin Shipyard Ltd (CSL) — will be involved in exploring the possibility of building LPG tankers locally.

With Varun Resources Ltd, India’s biggest owner of LPG ships, facing bankruptcy proceedings, fleet owners such as SCI are looking to expand their LPG fleet to tap the potential from State-run oil firms.

PSUs are mandated to extend a so-called right of first refusal (RoFR) to domestic shipowners. If the latter are not the lowest bidder in tenders floated by the PSUs to haul their cargo, they are offered an opportunity to match the lowest rate quoted by a foreign shipowner and take the contract.

Similarly, Indian shipyards have an RoFR on purchases by government departments and agencies, including State-run firms, according to a 10-year financial assistance policy for shipyards that took effect on April 1, 2016.

Domestic strengths

The policy mandates that even if the local shipyard is not the lowest bidder in a tender issued by a government department/agency/PSU, it can match the lowest foreign bid and secure the contract.

The government is looking to dovetail the two features to help India get started in LPG ship construction, the official mentioned earlier said.

SCI, India’s biggest shipowner, runs three LPG carriers — one very large gas carrier (VLGC) and two smaller vessels. Great Eastern Shipping Company Ltd, the country’s biggest private fleet owner, also runs three LPG ships.

Last year, Singapore’s BW LPG and India’s Global United Shipping set up an equal joint venture to own and operate gas ships for transportation of LPG within Indian waters.

The shipping industry, though, is sceptical of the government move to build LPG ships locally.

“Cryogenic ship construction in India would, in any case, take a long time,” said a shipping industry executive. Foreign yards will give delivery of a vessel in 30 months, whereas Indian yards will take a longer time to deliver the first ship because they have to start from scratch, he added.

“LPG ship construction might take a little lesser time than LNG ones, but the gestation period is still pretty long. How do you then substantiate or fulfil the demand at the current moment? That’s a Catch-22 situation,” he said.

“The demand is increasing today, but what happens after five years? That’s the question to be answered while finalising plans to buy LPG ships either from the global market, including second-hand purchases, or getting these ships constructed at Indian yards,” the industry executive said.

Source: THE HINDU BUSINESSLINE

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