ONGC seeks JV partners to own and run three very large ethane carriers worth some $510 million

ONGC has the option of increasing the stake to 50 per cent while the remaining equity will be held by the JV partner/s picked through an expression of interest (EoI) process currently run by the oil and gas explorer, per the EoI document posted on its website. ONGC plans to source and supply 800 kilo tonnes per annum (KTPA) of ethane, mostly likely from the United States, the biggest ethane market, to secure the feedstock for OPaL’s dual feed cracker plant capable of using a mix of Naphtha and C2 (Ethane), C3 (Propane) an C4 (Butane), from May 2028. One VLEC can transport some 98,000 cubic metres or 50 KTPA and costs as much as $170 million to build from scratch in the current market.

ONGC currently supplies ethane to OPaL which it extracts from the ‘rich’ LNG sourced from RasGas, Qatar by Petronet LNG Ltd (ONGC is an equity partner in Petronet LNG) on a 25-year contract which will end in May, 2028.

In the new LNG sourcing contract signed in 2024, RasGas will supply ‘lean’ LNG (devoid of ethane and propane). This is the main reason for sourcing/importing 800 KTPA of ethane because ONGC will not be able to extract ethane from the ‘lean’ LNG supplied by Qatar. ‘So, the Dahej plant requiring ethane will have to be shut down if the feedstock is not sourced or made available to OPaL in time,’ a government official said…The proposed JV company/companies ‘will select the shipyard and enter into an agreement’ with the shipbuilder for constructing the VLECs, as per the EoI. ‘These (VLECs) are not for business purposes; these are for captive requirements and there are some timelines. ONGC has taken cognisance of the efforts by the Ministry of Ports, Shipping and Waterways to develop domestic shipbuilding capabilities. If ONGC is to build the ethane carriers in India, they will not be available for requirement by May, 2028,’ the government official said, explaining why ONGC is unlikely to insist on these ships
being built locally.

The management of ONGC is said to have discussed the issue with the Ministry of Ports, Shipping and Waterways ahead of floating the EoI, a second source with knowledge of the matter said… ‘The JV company/companies will be tasked with securing international and domestic funding, including debt financing, for the VLECs, as well as avail government grants, subsidies, and any other incentives for the VLECs, as applicable,’ ONGC wrote in the EoI document, in a veiled reference to the government’s shipbuilding financial assistance scheme, which the Finance Minister Nirmala Sitharaman said will be ‘revamped’. The shipbuilding financial assistance will be applicable only when ships are built in India…ONGC has suggested two models for owning and chartering the VLECs.

Under the first model, the JVC(s) will appoint an affiliate of the JV partner(s) to provide charter service to ONGC or its subsidiary for which the affiliate will pay a so-called Bareboat Charter rate to the JVC(s). Bareboat Charter is a rental agreement for a ship between the shipowner and the charterer, without a crew or fuel. The entity hiring the ship (charterer) is responsible for the vessel’s management, operating expenses, and voyage expenses, including paying for fuel, port dues, maintenance, insurance, and crewing. The Bareboat Charter rate will be determined by the JVC(s) based on capex with suitable depreciation, operating expenses and reasonable rate of return on capital as per industry standards.

ONGC will sign a Continuous Voyage Charter (CVC) agreement or Time Charter agreement with the affiliate of the JV Partner(s), wherein ONGC will pay the affiliate Bareboat charter cost, direct operating expenses on actuals as well as cost of ship operation and management services.

In the second model, the JVC(s) will finalise a party or affiliate of the JV partner(s) as the vessel manager company. The JVC(s) will have a long-term charter agreement with ONGC or its subsidiary. The JVC(s) will pay the vessel manager company direct operating expenses on actuals and cost of ship operation and management services. The Time Charter Agreement will be signed by ONGC and the JVC(s), where ONGC will pay the JVC(s) the capex covering a reasonable yield, direct operating expenses on actuals, cost of ship operation and management services.

The long-term charter agreement rate will be as per prevailing industry benchmark.