Energy hungry India needs 15-20 new ships by 2017 to haul liquefied natural gas (LNG) to fire power, fertilizer and petrochemical plants. That number is not small by any means and could invigorate a sluggish shipping industry marked by over supply and low rates since late 2008 that was triggered by the global financial crisis.

Several LNG regasification terminals are being planned both on the western and eastern coasts of India to increase capacity to more than 50 million tonnes (mt) a year from the existing 18 mt to cater to the growing demand for the fuel.

It’s a huge business opportunity for fleet owners specializing in LNG ships. Such vessels currently cost between $200 million and $220 million, depending on capacity.

And, unlike the traditional shipping business, which is prone to high volatility, an LNG ship offers reasonably good and stable returns to its owner over a longer period—stretching as much as 25 years.

Moreover, the field is wide open for anyone to grab these contracts as India does not have an LNG shipping policy that mandates local fleet owners to hold equity in these ventures. Barring state-owned Shipping Corp. of India Ltd (SCI), none of the other Indian shipowners have managed to get a toehold in this business.

SCI is part of an Indo-Japanese shipowning consortium that has leased three LNG ships to Petronet LNG Ltd, India’s biggest buyer of the fuel, to transport the commodity from Qatar to its Dahej facility in Gujarat. SCI holds a 29.08% stake each in two of the vessels and 26% in the third. The other consortium partners include Japan’s Mitsui OSK Lines Ltd, NYK Line Ltd and K Line Ltd.

SCI oversees the technical and commercial operations of two of these specialized ships while the third is fully manned by officers and crew from the Indian company.

The existing LNG shipping policy approved by India’s cabinet in 2005 gives importers the flexibility to transport the cargo either on f.o.b. (free-on-board) or c.i.f. (cost-insurance-freight) basis by deploying foreign or Indian-registered ships.

In f.o.b. contracts, the responsibility for making shipping arrangements is that of the buyer. In c.i.f. deals, the seller has to do so.

The cabinet decision reversed earlier guidelines issued by India’s maritime regulator, the Directorate General of Shipping (DGS), in July 2004.

They stipulated that the licence for chartering LNG tankers to the country will be granted only if the vessels are registered under the Indian flag and owned either wholly by an Indian entity or by an Indian partner having not less than 26% equity in the joint venture company owning the LNG carrier(s).

The DGS norms, thus, indirectly made it mandatory that LNG be bought only on f.o.b. basis and for Indian shipowners to hold equity.

The cabinet also took the view that the position may be reviewed as needed (but, at least, once a year before the announcement of the Foreign Trade Policy) by an inter-ministerial committee comprising the secretaries of commerce, petroleum and natural gas, power and shipping, as well as the director general of shipping.

This would keep track of the changing market situation and suggest appropriate changes in the policy as and when required.

The Indian National Shipowners Association, the local fleet owners’ group, has been lobbying the government for the restoration of the stipulation regarding mandatory equity holding by local companies in LNG shipping ventures without any success.

SCI, meanwhile, caused some surprise by signing a so-called memorandum of understanding earlier in june with GAIL (India) Ltd.

Under this, SCI will be given equity stakes on a nomination basis, or without participating in a tender, in the planned LNG shipping ventures of India’s state-run natural gas company.

SCI will also assist GAIL in drafting tender documents and with the process for chartering LNG ships to transport 5.8 mt of natural gas a year from the US beginning 2017.

GAIL will require at least seven-eight LNG ships to import the cargo from the US.

The gas has been purchased from the US on f.o.b. basis, which means GAIL has to make its own transportation arrangements.

GAIL has the right to nominate SCI as an equity partner in the consortium that wins the tender, according to the memorandum of understanding signed between the two firms.

Global fleet owners say that India is not a commercially viable country in which to register LNG ships. It adopted a globally followed taxation system for the shipping industry in 2004 by introducing a tax based on the cargo carrying capacity of ships.

The tonnage tax—a regime under which close to 95% of the global shipping fleet operates—pruned the tax outgo of Indian shipping companies to 1-2% of their income, compared with the corporate tax rate of 33.9%.

However, the benefit of the tonnage tax has been negated by the prevalence of a dozen other taxes in India that are not applicable to ships registered overseas.

As a result, the three LNG carriers part-owned by SCI are registered in Malta.

Still, a potential $4 billion LNG shipping boom in India could set the stage for more local fleet owners to look at this sector with renewed vigour.

And, if some of these ships can be constructed at local shipbuilding yards, it will herald India’s entry into the specialized category and raise its standing globally by several notches.