Oslo-listed BW LPG, the world's largest owner of VLGCs with a fleet of 43, recently announced that it had invested $30mn in Indian private-sector LPG distributor Confidence Petroleum and was to develop an import terminal at Mumbai's Jawaharlal Nehru port in a joint venture with Confidence and Ganesh Benzoplast — a local chemical and oil product storage firm. The terminal will be able to store 62,000t of LPG and discharge 93,000m³ VLGCs. Argus spoke with chief executive Kristian Sorensen and vice-president of infrastructure and corporate development Iver Baatvik to discuss the firm's Indian plans in the first of two interviews with BW LPG:
What was the motivation behind your investment in Confidence Petroleum and plans to develop an import terminal in India?
Sorensen: We moved into the Indian LPG market by establishing BW India in 2017, which today has the largest fleet of Indian-flagged VLGCs. And we have also adopted a strategy to move into adjacent parts of shipping in the value chain, such as into trading through our BW Product Services division. So it was natural for us to see what opportunities there were on the infrastructure side, as it ties up nicely with our shipping and trading activities. And we have had a very good experience with BW India and it has been the perfect platform for us to look at expanding into India. This was the rationale behind looking at opportunities to invest in infrastructure in India. This then leads to our terminal project with our joint-venture partners Ganesh Benzoplast and Confidence Petroleum, and a separate investment in Confidence Petroleum to support their growth [on the domestic LPG market] by becoming a shareholder with 8.5pc of the shares.
Baatvik: It is important to note that shipping remains the core for BW LPG. But now, through BW LPG Infrastructure and BW Product Services, we can support shipping as well as being successful as operations on their own. It makes a lot of sense to support infrastructure development in India through Confidence Petroleum — the largest private-sector distributor in the country — to make sure we have the offtake, information and experience needed. About 20-25pc of LPG imports to India are carried on BW India's VLGCs. We are building on an established strategic position, and we have good relationships with [state-run oil refiners IOC, Bharat Petroleum and Hindustan Petroleum], and now the largest private-sector distributor.
Is there any conflict of interest in serving the three state-run refiners at the same time as investing in and partnering with Confidence Petroleum?
Baatvik: What we are doing has been discussed with the three oil companies… [including] the need for import terminals and how we could help contribute more to this part of the value chain to help them. Confidence Petroleum is also not really a direct competitor right now because the three [refiners] serve the retail market, whereas Confidence Petroleum serves the industrial and autogas markets, which are not subsidised. So there is a division but also co-operation. Confidence Petroleum has agreements with several Indian oil companies for bottling LPG, for example.
Sorensen: It is important to emphasise that we wouldn't do this if we didn't think we could add value to LPG distribution in India. If we can add value, it fits with our strategy and there is potential to participate in profitable parts of the value chain, that ticks boxes. This has been welcomed by the established players in the market because there is still room for improvement in regard to India's LPG import infrastructure. But the local partnerships are also crucial.
What is the next stage of the Jawaharlal Nehru terminal project?
Baatvik: Some work has started on site but we are still in the early engineering stages. Each party brings its own expertise — Ganesh Benzoplast has an EPC arm that can carry out construction, in addition to the terminal being in its backyard. Confidence Petroleum has offtake abilities and market knowledge. So we've used this to evaluate what the best location for the terminal will be in terms of downstream sales and throughput, while from our shipping and trading perspective, it makes sense to have it close to the Middle East and to have an uncongested port that can quickly offload a full VLGC. That is our aim — to bring economies of scale to the Indian market as congestion is still a problem. This was one of the reasons this project emerged — our ships were waiting to offload cargoes and had to do two or more discharges, incurring costs for our customers and ultimately the end-user.
India's LPG consumption and imports have expanded rapidly over the past two decades. Are you arriving late to the party?
Sorensen: Whether demand continues to grow at the same rate remains to be seen. One can argue it is unlikely, but given India's growing population and standards of living, there is good reason to believe energy consumption will increase significantly too. If you compare India's energy consumption with the western world, there is great potential still, and we believe LPG has a big role to play there. And so far, its use has largely been confined to the residential sector, which has driven demand growth. We have only seen one major petrochemical project, [gas firm Gail's 500,000 t/yr propane dehydrogenation project in Usar], which is going to be in close proximity to our terminal, and it's fair to think India's economic growth will support the petrochemical sector in the future.
Baatvik: You must remember that LPG consumption per capita in India is still only 17-18kg/yr, when 24-25kg/yr is achievable for a country like India. There is still huge potential for demand growth with the energy plans being put in place by prime minister Narendra Modi. And LPG demand is growing from about 30mn t/yr. It's a huge base. So even if growth is 3pc/yr instead of 7-8pc/yr, it's a massive amount of more LPG that is needed when congestion is already a problem at ports and terminals. I think India is very well-positioned because of its expected economic growth and the competitiveness of LPG prices thanks to its proximity to the Middle East. Part of the $30mn we invested in Confidence Petroleum is dedicated to support its growth plan, which [includes] building 250 autogas stations in the next three years. So we also see huge potential for autogas growth in India.
You mentioned nearby Middle East supplies. Do you expect exports to continue growing from the region, supporting Indian market growth?
Baatvik: If you look a few years ahead with the big LNG projects in Qatar and Abu Dhabi and the LPG to emerge from these, then there is good reason to believe LPG will be a very competitively priced fuel source for India, which is only a few days of sailing awayfrom massive new sources of production from 2026.
Sorensen: Large amounts of new LPG production is coming on stream, making it more competitive. It has remained competitive through each recent global crisis.
What are the main operational challenges for BW LPG in India?
Baatvik: On the shipping side, we see a shortage of import terminals and delays for our VLGCs, creating unnecessary high costs for our customers. In terms of our collaborations, so far things are going well, and we have respect for the Indian culture and their way of doing business. I am amazed by the development taking place in India when I'm there. For example, the growth in the finance sector, which is pushing towards transparency and professionalism in a big and quick way.
Sorensen: The government has done a lot to fight some of the bureaucratic hurdles that you had in India 10-15 years ago, as well as corruption. The direction the government established many years ago is increasingly coming to fruition.
Does BW LPG have any similar plans for other countries?
Sorensen: We are looking at opportunities all around the world. So I wouldn't rule out anything but areas where we believe we can add value and profitably participate in the LPG value chain are typically in the developing parts of the world.
Baatvik: We are actively looking at opportunities in the Indian subcontinent, Africa, southeast Asia and China. These are areas where we can leverage our existing position in trading, shipping and now infrastructure to generate high returns and at the same time strengthen our overall business. These opportunities may include strategic partnerships or direct investments, while adhering to capital discipline.
