Image: Nakilat

Japanese companies sent a huge contingent to LNG 17 the other week, which makes sense considering they are, and will likely remain the world’s biggest consumers of LNG for the foreseeable future.

With soaring energy costs, the Japanese seemed to have a pretty uniform goal, to invest as much as possible in other sources of energy and energy supply chains around the world.  Many others like Qatar and Saudi Arabia are following suit and hedging themselves for what is turning out to be a reversal of their business model.  Even the Louisiana Offshore Oil Port, which connects the world’s largest oil tankers with over half of the United States’ refining capacity is readjusting its business model for the changing flow of energy.

With the eventual opening of the LNG flood gates from the US however, coupled with Free Trade Agreements to places such as Japan, American energy firms and tax payers stand to cash in on the huge price gap that exists between the price of gas in the U.S. versus that which exists overseas.

ExxonMobil, with their acquisition of XTO, now owns the biggest conventional gas acreages in the United States and stands to become the biggest winner of all and has the potential to put the exclamation point on CEO Rex Tillerson’s career.

Besides huge profits for gas producers in the US, the gas revolution is going to be extraordinarily good for far eastern shipyards like Daewoo, Samsung, Hudong-Zhonghua, and Hyundai Heavy Industries.

At the moment, there’s a fairly good balance between supply and demand when it comes to the supply of ships and the demand for LNG product to be carried.  Qatar, for example, uses 54 LNG carriers to transport their 77 million metric tons per year of LNG.  Qatar also has a 70% stake in the Golden Pass LNG terminal in Texas.  Additional exports from the US Gulf Coast will directly equal increased demand for more LNG carriers.

While regulators in the US trudge through the LNG export approval process, energy firms like Anadarko charge ahead with an ambitious LNG agenda offshore Mozambique in a field which was recently found to have at least 65 trillion cubic feet of recoverable reserves.

Places like Mozambique, and offshore Israel as we mentioned in a recent interview, have the potential to really change the LNG marketplace given the sheer size of their fields and their proximity to the Asian and European markets respectively.

Not necessarily in a good way for the United States however.

As more gas becomes available on the market, the price will inevitably drop, and the window of opportunity to gain huge profits from overseas shipments of North American LNG will slowly close.  The demand for natural gas, by all accounts will continue to grow globally over the forseeable future, but as some like Wärtsilä Vice President John Hatley have noted, the United States is currently in a “Golden Era of Gas.”

In Mozambique, two 5 million metric tons per annum (mtpa) LNG trains are currently under construction to support the huge conventional gas finds located 25 miles offshore.

Their partners on the project include Mozambiquan state oil company, Empresa Nacional de Hidrocarbonetos, E.P., India’s state-owned Bharat PetroResources Ltd, Indian private equity firm Videocon Hydrocarbon Holdings, Ltd, Thailand’s PTT Exploration & Production, and Mitsui & Co.  Considering the partners involved, their target market will predominantly be India and Japan.

First LNG production is planned for 2018 and their plans are to eventually ramp up production to 50 million mtpa, or 2/3rds of the current production of Qatar.

What does that mean for LNG shipping?

A lot more ships.  To handle 50 million mtpa, upwards of 35 LNG carriers may be needed for transportation if you compare the ratio between Qatar’s fleet size and their total LNG exports.  Floating re-gasification will also likely be required in various locations which is great news for regas pioneer, Excelerate Energy.

How many ships are being built right now?  Click HERE to find out.

Enrica Lexie in Kochi, India.

By Suchitra Mohanty

NEW DELHI, April 26 (Reuters) – An Indian anti-terrorism agency will investigate the case of two Italian marines accused of murdering two Indian fishermen, India’s top court said on Friday, raising the possibility once more of the men facing the death penalty.

The accused, Massimiliano Latorre and Salvatore Girone, are charged with murder in connection with the shooting of fishermen off the coast of the southern state of Kerala last year while serving as security guards on a cargo ship.

The two say they fired warning shots at a fishing boat believing it to be a pirate vessel with armed men onboard. Italy maintains the incident happened in international waters and that the men should be tried on home soil.

Last week, Italy opposed India’s decision to appoint the anti-terrorism National Investigation Agency (NIA) to investigate the case, saying that the NIA only had the jurisdiction to investigate terrorist crimes.

It fears the NIA will invoke a maritime security law that attracts a mandatory punishment of death, which would violate an assurance given by India that the men would not be sent to the gallows.

On Friday, Italy said it would wait to see if the NIA invoked the maritime security law before deciding whether to challenge the court’s decision.

“The order says the NIA will continue on the case, but let’s see what charges are framed on the men. That will determine our course of action,” said a lawyer representing Italy, who did not want to be named.

Tensions between India and Italy have escalated over the case since the shooting, peaking last month when Italy refused to send the marines back from a home visit. Outraged, India’s top court briefly barred the Italian envoy from leaving the country.

Rome returned the marines for trial after New Delhi promised them the men would not face the death sentence. Italy’s foreign minister resigned after the marines returned to India, saying he did not agree with the decision to send them back.

Italy abolished the death penalty in 1947. In the past six months, India has hanged two men convicted of militant attacks. (Writing by Annie Banerji; Editing by Frank Jack Daniel)

(c) 2013 Thomson Reuters Click For Restrictions

Update: The captain and crew were granted 24-hour shore passes on Wednesday.

According to a report by the Times of India, the captain of the Korean-flagged OSM Arena ordered his crew to abandon ship on a fishing boat and to seek help after the vessel began to take on water. Soon after, the captain and chief engineer descended on a Madras High Court and told a judge that his crew had been abandoned without power or provisions, and that their vessel was taking on water and in danger of capsizing.

The Captain said he had joined the ship two months ago with his crew, but the ship has been without fuel and power since April 3. “The previous owner supplied provisions and stores, but we were running out of the stocks. My men were starving and crying. For days, we managed with dry food. The ship is no longer stable as water has entered one of the cargo holds and the engine room. Since the vessel can capsize any moment, I gave a call to all the 14 crew to abandon the ship,” the captain told reports.

Unfortunately for the captain and crew, they were told that coming to shore without clearance was against the law and cases would be filed against them. The court later ordered three of the crewmembers to return to the vessel, the Times of India reports.

The incident is the latest involving a dead vessel and abandoned crew off the coast of Chennai. In November 2012, 6 crew members from the grounded MT Pratibha Cauvery were killed while trying to reach shore after abandoning ship during a storm. The incident raised concerns over the number of dead vessels that have found a safe haven in Indian ports.  Two shipping executives were later arrested and charged in connection to seafarers deaths.

MV Grietje via MarineTraffic.com

The Captain and Second Officer of a German-owned cargo ship have been arrested in India and charged in connection to a fatal ship collision with an Indian fishing vessel off the coast of Chennai.

According to reports, the MV Grietj allegedly collided with an Indian fishing vessel on March 16 about 10 nautical miles off Chennai in an apparent hit and run, resulting in the death of one fisherman.

Indian authorities traced the collision to the Antigua and Barbuda-flagged MV Grietj, a heavy lift cargo ship owned by SAL Heavy Lift of Germany, and on Tuesday arrested the ship’s captain, Albrecht Wolsgang, and second officer, Steffen Hinksoth, who are both from Germany. The men were booked on charges of causing death due to negligence and released on bail but are forbidden from leaving the country.

A report by the Times of India alleges that an inspection of the MV Grietj showed no physical evidence of a collision but enough circumstantial evidence, including AIS data and a non-functioning VDR, gave authorities enough evidence to detain and charge the sailors.

The incident comes as India is in the process of trying two Italians marines accused of killing an innocent fisherman in international waters.  The two marines were part of a security detail on board the MV Enrica Lexie and had mistaken the fisherman for pirates. The incident has sparked a heated diplomatic row between the two countries.

JSW Infrastructure Ltd., a closely held builder of ports in which Eton Park Capital Management LP owns 10 percent, is seeking government approval to set up the regasification unit in Jaigarh on the west coast, 356 kilometers (211 miles) south of Mumbai, B.V.J.K. Sharma, joint managing director at the company said in an interview. The facility, expected to be operational by December 2016, will be operated by a partner, he said.

JSW is joining Oil & Natural Gas Corp., India’s biggest energy explorer, and Indian Oil Corp., the nation’s largest refiner, to announce plans for such terminals as demand surges for gas used by power plants and fertilizer makers. Domestic output in Asia’s second-biggest fossil fuel consumer, has declined every month since November 2010 as the biggest field operated by billionaire Mukesh Ambani’s Reliance Industries Ltd. yields less, making the case for higher imports to stoke growth.

“Considering the kind of energy requirement the country will have, which is very high, this is going to happen all over India,” Sharma said in the interview. “We are in the process of environmental clearance after which we will build it.”

Demand Doubling

India’s gas demand is projected to double to 2.4 quadrillion British thermal units by 2020, from 1.2 quadrillion Btu in 2012, according to U.S. Energy Information Administration data. The infrastructure to handle imports will be crucial to help revive the $1.8 trillion economy, No. 3 in Asia, from its slowest pace of growth in a decade.

Natural gas production in India declined 14 percent to 37.5 billion cubic meters in the 11 months ended Feb. 28, according to oil ministry data. The fall in output, combined with a coal shortage worsened by mining curbs to protect the environment, is threatening Prime Minister Manmohan Singh’s plans to boost electricity generation.

Rising costs of imported coal due to increase in levies in Indonesia, small size of renewable energy projects and falling domestic natural gas production continue to throw fuel sourcing challenge for centralized power generation given the consumer tariffs, said Sandeep Kumar Mohanty, senior consultant at PriceWaterhouseCoopers in New Delhi.

Mid-term Option

“LNG, although not cheap, will emerge as mid-term option to fulfill the growing needs of the country of fuel for chemicals and petrochemicals industry, and feed stock for fertilizer sector,” Mohanty said. “A number of developed countries like South Korea, Japan, U.K., France, Italy, Taiwan and Spain import significant quantum of gas or LNG to meet their growing needs.”

A peak shortfall of 9 percent in electricity supplies leads to blackouts that shave about 1.2 percentage points off economic growth, according to government estimates. About 13,000 megawatts of gas-based capacity is under construction at various stages, for which fuel supply needs to be secured, according to a report by the nation’s Planning Commission, which assesses and allocates resources.

“Availability of gas for power generation is a big issue which needs to be addressed,” according to the Commission. ‘If gas availability to projects already under construction is not ensured, it may become stranded assets and should be avoided.”

Battling Slump

Reliance is battling to reverse a three-year slump at Krishna-Godavari gas basin and is spending about $1 million a day with partner BP Plc to look for new reserves more than a mile below its biggest field, a person with direct knowledge of the matter said this month. The two companies plan to spend more than $5 billion in five years to develop discovered gas deposits in the KG-D6 block off India’s east coast.

India’s natural gas output fell 20 percent last month from last year, according to a government statement on the Press Information Bureau website.

A group led by ONGC on March 19 signed an agreement with Mangalore Port Trust to build a LNG import terminal in the western coastal city in Karnataka state. The facility, which will process inbound shipments for local use, will have a capacity of as much as 3 million metric tons a year and can be expanded to 5 million tons.

Indian Oil’s plant at Ennore in the east coast will start in 2016 with a capacity of 5 million tons and expand to 10 million tons in 2022, Aditya Singhal, manager of business development, said March 7.

Can’t Afford

“The viability of all the planned LNG import terminals in India will depend on the price at which gas is available,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt.

Power and fertilizer companies, which use more than 60 percent of gas, can’t afford to pay more than $12 per million British thermal units because the retail prices of electricity and urea are controlled by the government, Dixit said.

“All these LNG terminals can be built but developers may have trouble ensuring long-term demand,” Dixit said.
Japan paid $16.32 per million Btu for LNG imported in January, according to data compiled by Bloomberg. Imports last year were at an average $16.70 per million Btu.

India has three operational gas import terminals operated by Petronet LNG Ltd., Royal Dutch Shell Plc and Total SA. and GAIL India Ltd., all on the western coast. They have a total capacity of 18.6 million tons a year. Petronet is scheduled to start another terminal with 5 million tons capacity this year at Kochi in the southern state of Kerala.

Deterring Investment

The nation’s LNG receiving capacity will reach 71.5 million tons by 2022, Indian Oil’s Singhal said. India will become the third-biggest LNG importer by 2025, behind Japan and China, BG Group Plc Chief Executive Officer Chris Finlayson said March 20.

Ambiguity over supply and pricing of natural gas, the main feedstock used in producing urea, a fertilizer controlled by the government, have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies.

A new policy assuring urea units a profit margin of 12 percent to 20 percent may prompt Aditya Birla Nuvo Ltd., Tata Chemicals Ltd. and rivals to invest $9 billion to increase nation’s urea capacity by almost 50 percent. Supply of gas will be key in ensuring spending in the fertilizer industry, according to a separate Planning Commission report.

JSW Infrastructure’s Jaigarh port that started operations in August 2009, aims to handle about 100 million tons of cargo including gas, thermal and metallurgical coal, bauxite, iron ore and fertilizer by 2020 up from about 8 million tons this year, Sharma said. The company, led by Sajjan Jindal, aims to bring large-capacity capesize vessels that would bring economies of scale, he said.

Sharma declined to elaborate on financing of the liquefied natural gas terminal near the port.

“There is an increased focus on creating infrastructure, which will need us to import energy including gas,” Sharma said.

- Abhishek Shanker and Rakteem Katakey, Copyright 2013 Bloomberg.

Enrica Lexie in Kochi, India

UPDATE (Mar. 21): Italian Marines Agree to Return to India to Stand Trial, Diffuse Diplomatic Row

By John A.C. Cartner, Special to Piracy Daily

Amidst all the head-wagging and hand-gesticulating marking the anti-pirate controversy between the Indian and Italian governments and the laws, we should step back and look at both the shorter and longer implications of the matter.

Above all laws there is the Law of Unintended Consequences, LUC, — which is alive and well. LUC, pronounced as it is spelled, has been formulated in many ways. It says generally that from a complex system it is impossible to predict all future states of that system. That means that we do not know enough about how the system works to make it fully determinative. Hence law, a complex system, is not fully determinative and is subject to the LUC.

We have worked out a rough and ready system to deal with these consequences in our courts. However, courts are not seers and the consequences continue to occur. Viva la difference!

So it is with the Italo-Indian dispute. There is a framework within which this dispute principally falls. It is the United Nations Convention on the Law of the Sea 1982, also awkwardly called UNCLOS 1982. It has one of the few definitions of piracy to which most agree. It also pretty well says what laws apply in the seas adjacent to a state and what laws apply aboard a ship and why.

So in the short-term, what’s the problem? Sorting the mess out. Could UNCLOS 1982 have predicted such a situation? While we are sorting we can say that it does so not very well.

Here is the problem: The UNCLOS 1982 is quite clear that coastal state law prevails within the waters defined by the Convention except International Water which is water under no State’s jurisdiction. By implication it says what criminal laws prevail on a vessel transiting jurisdictional waters innocently by relating the passage to the crime as to those of the coastal state.

If that is the case, then coastal state laws apply. It also defines innocent passage and says that ‘any exercise or practice with weapons of any kind’ by a foreign ship within jurisdictional waters shall be considered to be ‘prejudicial to the peace, good order or security of the coastal State’ and the vessel making the passage is therefore not innocent permiting the coastal state to act.

Refreshing the facts in the Indo-Italian dispute, Italian Ministry of Defense troops, privately contracted out, fired upon and killed fishermen thought to be pirates on waters wherein Indian criminal laws prevailed. LUC has now taken over. There is no mention in the Convention as to whether or not those who appear to be pirates may be defended against. The piracy definitions require an act of piracy, carefully worded as to place and kind, before piracy can be concluded.

The Indian position: no act, no piracy. The Italian position: so what? Piracy and all that surrounds it is a universal crime and Italian sovereign immunity prevails and you Indians may try but you may not convict unless we agree and, even if you do, we do not have to return our people to you for your juridical acts.

So where lies the fault? Indians? No. Italians? No? Convention? Yes. It failed to foresee what might happen. LUC has prevailed. The Indians read the Convention for what it says – to a point. However, the Indians do not make any extensions of the language leading to reasonable expectations of piracy and reactions to it. The Italians rely on the ancient principles established by the Treaties of Münster and Osnabrück of 1648, ending the European religious wars. These treaties are the bedrocks of sovereignty.

In the longer term, however, we must revisit the implications of arming vessels. Article 19 of UNCLOS 1982 defines innocent passage wherein ‘any exercise or practice with weapons of any kind’ by a vessel not of jurisdictional registry is ‘prejudicial to the peace, good order or security of the coastal State.’ Therefore such passage is not innocent. If the passage is not innocent the coastal state may exercise its lawful powers of defense.

But what is arming a vessel? Are small arms naval weapons? Probably not under most states’ prevailing laws. Further, under those self-same laws there is no universal definition of small arms. Is naval artillery, then, arming a vessel? Most probably, however, the definitions of the old naval treaties describing gunnery are not apposite to the modern age of much more powerful and intelligent weapons which blur the distinction between small arms in size and naval weapons in power.

Curiously, each of the above questions is relatable to letters of marque and reprisal about which I have written in this journal. Privateering, wherein a person holds a license from a sovereign, allows the arming of persons, assumedly with small arms, and vessels, assumedly with naval artillery, all to do the sovereign’s bidding. A letter of marque is issued to a vessel, not to a person, and implies that vessel arming is allowed but not necessarily expressly saying personal arming is allowed. It would seem that after nearly a millennium of this law we could craft a solution.

I do not see it coming any closer except by precisely defining the energy transmitted to the target of a weapon and drawing a bright line as to what comprises small arms and what comprises naval artillery. After all, we carefully describe navigation lights in highly technical annexes to the collision rules. We can do the same with weaponry. We probably ought to devise some new terms while we are at it to make the definitions more nearly precise. And while we are defining we can also try to come up with something that deals with reasonable expectations of imminent piracy.

Perhaps, too, the disputants can look ahead and see that the Italian marines are culpable under the laws of tort/delict and wherein there may be Italian criminal negligence. After all, most states have laws supervening sovereignty in some cases so that some criminal laws may be exercised or civil action may be taken for damages against a government.

About the Author

John A C Cartner is an unrestricted master mariner (US) and maritime lawyer practicing in Washington, DC and practising in London and is the principal author of The International Law of the Shipmaster (2009). He can be reached at jacc@cflaw.net. © 2013 John A C Cartner, all rights reserved.

BG will supply state-owned Gujarat State Petroleum Corp. with as much as 2.5 million tons a year of LNG, the Reading, U.K.-based company said today in a statement. BG will initially sell 1.25 million tons a year in 2015, and the contract will run for up to 20 years, it said.

India, one of the world’s fastest-growing large economies, consumes almost 35 percent more gas than it produces, according to the U.S. Energy Information Administration. Asian prices for LNG currently trade at about $16.79 per million British Thermal Units, compared with as low as $3.49 in the U.S, according to data from Poten & Partners.

“We have been active in India for more than 15 years and it is a large and important market that we understand well,” BG Chief Executive Officer Chris Finlayson said. “We expect the country to lie third among LNG importing countries by 2025, behind Japan and China.”

- Brian Swint, Copyright 2013 Bloomberg.

Enrica Lexie in Kochi, India

By Bibhudatta Pradhan

Enrica Lexie in Kochi, India

NEW DELHI (Reuters) – India summoned the Italian ambassador on Tuesday to protest Rome’s decision not to send two marines charged with killing Indian fishermen while on anti-piracy duty back to India to face trial.

India’s Supreme Court had allowed Massimiliano Latorre and Salvatore Girone to return home for four weeks to vote in last month’s general election, provided they returned.

They have not done so and on Monday the Italian foreign ministry announced India had not responded to its requests for a diplomatic solution to the case. It said there was now a formal dispute over the terms of the U.N. Convention of the Law of the Sea.

The two sailors, part of a military security team protecting the tanker Enrica Lexie from pirates, were accused of shooting the two fishermen after mistaking them for pirates off the southern Indian state of Kerala in February last year.

The incident has caused a serious diplomatic dispute between Italy and India, which have traditionally had good relations.

“Government of India states firmly that it does not agree with the position conveyed by the Italian Government on the return of the two Marines to India,” an Indian foreign ministry statement said on Tuesday evening.

“The Italian Ambassador was summoned by the Foreign Secretary today and Government of India’s position on this matter was conveyed to him in the strongest of terms.”

“It was conveyed to the Italian Ambassador that the Italian Government was obliged to ensure their return to India within the stipulated period as per the terms of the Supreme Court Order.”

India’s Supreme Court said in a long-awaited ruling in January that India had jurisdiction to try the marines, but Italy has challenged that decision, arguing that the shooting took place in international waters.

The sailors arrived back in Italy on Feb. 23, a day before the country’s election, after India’s Supreme Court granted their request to exercise their right to vote.

They had already spent Christmas in Italy, after a Kerala court allowed them to join their families for the holiday on condition they returned to India by Jan. 10, which they did.

Italy’s announcement the sailors would not return sparked protests in Kerala on Tuesday. Fishermen marched through the state capital Thiruvananthapuram and burned effigies of them.

“If the government fails to enforce its law, it will encourage foreigners to kill Indians and escape,” said T. Peter, a protest leader. “The government should immediately use its power to bring the marines back and put them on trial.”

Doramma, wife of Jelastine, one of the two fishermen shot dead, demanded justice.

“The monetary compensation the Italian government gave us does not compensate the loss we have suffered. The government should see that the killers are brought back to stand trial in the case in the country,” she said. (Reporting by Matthias Williams; additional reporting by D.Jose; editing by Andrew Roche)

(c) 2013 Thomson Reuters, Click For Restrictions

The two Italian marines, Massimiliano Latorre (L) and Salvatore Girone, shown in Kochi, India on Dec. 18, 2012 awaiting their return to Italy for the holidays. REUTERS/Sivaram V

ROME, March 11 (Reuters) – Two Italian marines charged in India with killing two fishermen while on anti-piracy duty will not return there from a home visit granted to allow them to vote in last month’s election, the Italian Foreign Ministry said on Monday.

Enrica Lexie

The ministry said India had not responded to Italian requests to seek a diplomatic solution to the case and there was now a formal dispute between the two countries over the terms of the U.N. Convention of the Law of the Sea.

“Italy has informed the Indian government that, given the formal initiation of an international dispute between the two states, the marines Massimiliano Latorre and Salvatore Girone will not return to India at the end of their home leave.”

The two sailors, part of a military security team protecting the tanker Enrica Lexie, were accused of shooting the two fishermen they say they mistook for pirates off the southern Indian state of Kerala in February last year.

The incident has caused a serious diplomatic dispute between Italy and India, which have traditionally had good relations.

India’s Supreme Court said in a long-awaited ruling in January that India had jurisdiction to try the marines but Italy has challenged that decision, arguing that the shooting took place in international waters.

The sailors arrived back in Italy on Feb. 23, a day before the country’s election, after India’s Supreme Court granted their request to exercise their right to vote. They were allowed to remain in Italy for four weeks.

They also spent Christmas in Italy, after a Kerala court allowed them to join their families for the holiday, on condition they returned to India by Jan. 10, which they did. (Reporting by James Mackenzie; Editing by Alison Williams)

(c) 2013 Thomson Reuters, Click For Restrictions