IOC to start work on its 1st LNG terminal by end-2013

NEW DELHI (Reuters) - Indian Oil Corp will start work on its first liquefied natural gas (LNG) plant at Ennore in the east coast by the end of this year, its chairman said on Tuesday, as it sees a gradual rise in local acceptance of the costly imported fuel.

State refiners IOC, Hindustan Petroleum Corp and Bharat Petroleum Corp , also major gas users, have all unveiled plans to build LNG plants as local gas output falls, which will increase the share of he costly imported fuel in India's energy mix.

India's gas demand will rise to 466 million cubic metres a day (mcmd) in 2016/17 from 286 mcmd in 2012/2013, according to the government estimates, while its supply will be only half that.

IOC, India's biggest retailer of fuel for transport and industrial uses accounting for half of demand, aims to supply clients who want to replace fuel oil and naphtha with gas, R. S. Butola told a news conference.

"When it comes to a fully-grown (mature) market, who has got better spread than Indian Oil? ... In the long term there should be much wider acceptance of market prices for gas," Butola said.

The government in June took the unpopular step of raising domestic gas prices from April and linking them to global LNG benchmarks after keeping them frozen for three years.

IOC is in process of tying up customers for the Ennore LNG terminal, which is likely to be ready in 2016/17, said its head of business development, A. M. K. Sinha. IOC is in talks with global firms including Russia's Gazprom to source gas for the Ennore plant, he added.

"We are in discussion with potential customers like Madras Fertiliser, Chennai Petroleum and some auto industries in the region. Day by day we are increasing our list," Sinha said.

IOC has also signed an initial deal with Dhamra Port Ltd to build a 5 million tonne/year LNG plant in eastern Orissa state.

It could annually use 2.5 million tonnes of LNG from the Orissa terminal for its planned 300,000 barrels per day Paradip refinery and its existing Haldia and Barauni refineries, Sinha said.

IOC along with subsidiary Chennai Petroleum Corp controls about 31 percent of the national refining capacity of 4.3 million bpd.

HPCL's head of finance, K V Rao, also said his firm would replace naphtha and fuel oil at its two refineries with gas from its planned terminal in western Gujarat state.

(Reporting by Nidhi Verma; editing by Jane Baird)