GAIL cuts down long term gas purchase from RasGas

To use spot LNG at its petrochemical unit to cut costs

GAIL (India), the country’s largest gas transmission and marketing company, has decided to cut its long-term purchase of liquefied natural gas (LNG) from Qatar's RasGas by 35 per cent.

"We are discussing this issue in terms of the options that we have of downward flexibility of 10 per cent built in to the contract. We are reducing the offtake by another 10-20 per cent," GAIL chaiman B C Tripathi told analysts in Mumbai.
 

GAIL reported a dismal set of numbers for the quarter ended March 2015. Immense losses suffered by the petrochemical segment and lower trading/marketing margins had a sharp bearing on its performance, which came in below Street expectations. The stock, which fell 4.5 per cent intra-day, closed with a loss of 1.85 per cent at Rs 381.15 after the results on Wednesday.

GAIL has been under stress as liquified natural gas (LNG) procured via long-term contract has turned out to be expensive than spot buys with no takers for the gas. 
 

The company has now decided to use spot gas at its petrochemical plant.

"Petrochemical plant is consuming regasified LNG as of now. We have decided that it will use spot gas from next month. We have signed a term deal for six cargoes of spot gas from a major supplier. This will help reduce input costs," said Tripathi.

The 7.5 million tonne LNG from Rasgas procured by Petronet LNG (of which GAILis liable to take 60 per cent) on take-or-pay basis is expensive at $13 per mBtu. Spot gas on the other hand is available at $8 per mBtu.

GAIL’s extensive network of pipeline, too, remains under-utilised due to shortage of natural gas and low demand for high-priced imported LNG cargoes (long-term contracts) looking at low spot prices of LNG. Due to these two factors, analysts remain worried, and expect the stock to stay under pressure.