GAIL to import LNG from US only on India-owned carriers

Move a part of government's efforts to ensure energy security

Taking a cue from China on ensuring energy security by keeping oil and gas sector out of any future diplomatic standoffs, India has initiated steps to ensure that state-run GAIL's move to import liquefied natural gas (LNG) from the US should be on carriers with substantial Indian ownership.

Already countries like China insist that ships must be built in China if chartered on long-term to Chinese oil majors. GAIL is planning to source six million tonnes (mt) of LNG from the US annually, with an exposure of $2.5 billion calculated at FoB price of $9 a million British thermal unit, eyeing domestic power and fertiliser consumers. Keeping this in mind, the government now wants Indian shipyards to enter into collaboration with foreign shipyards to develop domestic ship building capacity in LNG space. The LNG supply from the US is likely to commence by September 2017.

On December 24, petroleum secretary Vivek Rae had a meeting with the heads of all the major shipyards in the country to push the plan. Representatives from six major shipyards participated in the meeting- including Pipavav Shipyard, L&T Shipyard, Goa Shipyard, Mazgaon Docks, Cochin Shipyard and ABG Shipyard. The CMDs of GAIL, Shipping Corporation of India and ONGC were also part of the meeting.

"We want to make sure that if there is a diplomatic tussle in future, it should not affect our LNG import plans. If Indian shipyards are roped in into the scheme of things, GAIL would be able to float its tender for award of time charter contract based on that, which would be evaluated on a life cycle-cost basis," said a senior petroleum ministry official.

GAIL has already signed a memorandum of understanding with SCI and agreed to provide SCI with step-in right to take up to 26 per cent equity in each of the LNG carriers that would be chartered by GAIL and the company would also retain a similar right of up to 10 per cent equity participation.

"Shipyards are getting in touch with prospective companies to participate in contracts for LNG carriers. The motive is to promote Indian shipbuilding. If India is going to import a lot of LNG from US then the Indian company should also be able to get some benefit out of it," said Sunil Thapar, director-bunker and tanker division, Shipping Corporation of India. According to the ministry, distance between the US east coast and India is large and including a return voyage time of about 50 days.

The ministry is planning to have time charter party agreements with major shipyards by the third quarter of 2014, in order to give adequate time for global majors for tie us and also ship building. GAIL is the largess LNG offtake holder from US, with contracts in place of 3.5 mt per annum from Sabine Pass project and another 2.3 mt from Cove Point signed last year. GAIL also has contracts with Gazrom in Russia and Gorgon project in Australia.

However, there is a contrarian view about the ability of Indian shipyards to deliver such carriers. "None of the Indian shipyards have the ability to make LNG carriers. It will be a while before we get there. The technology required is not available," said Dhananjay Datar, chief financial officer, ABG Shipyard. He also said if Indian shipyards were to venture into this business they would have to tie up with bigger companies in South Korea and China.