GAIL to swap US LNG, issue tender next month

Company in two deals, has contracted 5.3 million tonnes a year of super-cooled gas from the US starting 2018

State-owned gas utility GAIL India plans to swap over one-third of the liquefied natural gas (LNG) it has contracted from US with a gas seller nearer to India to save on transportation costs.

GAIL, in two deals, has contracted 5.3 million tonnes a year of super-cooled gas (LNG) from the US starting 2018. Of this, it reckons that 3-3.5 million tonnes will be shipped to India for consumption by local industries like power and fertiliser plants.

"Transporting LNG in cryogenic ships from the US will not just be time-consuming, but will add a little extra to the cost, wiping away some of the gain accruing from a Henry Hub linked price for gas," a senior company official said.

To overcome this, GAIL plans to swap 1-2 million tonnes per annum of LNG from the US with a seller in Africa, the Middle East or Asia-Pacific.

"There are sellers who sell LNG to Europe from the Middle East or East Africa or the Asia Pacific region. GAIL's US LNG can be supplied to European users and an equivalent volume shipped to India," the official said.

Doing this would help GAIL save on 10-15 days needed for a ship to travel from the US to India and back. For the other seller, the same benefit will accrue, besides saving on the transportation cost.

"We would like the saving the seller makes through the swap to be shared with GAIL. We believe we can save 40-50 cents per million British thermal unit through the swap," he said.

GAIL plans to issue tender for the swap some time in August, he said. "The issue has to go to the Board. Once the Board approves it, we will issue the swap tender through Singapore-based trading arm, GAIL Global Singapore Pte," the official said.

GAIL has two US deals -- one with Cheniere Energy Partners to buy 3.5 million tonnes a year of LNG from Sabine Pass Liquefaction, a subsidiary of Cheniere, and another a 20-year sales and purchase agreement with Dominion Resources for supply of 2.3 million tonnes per annum.

Supplies from both deals begin in 2018.

GAIL also holds a 20 per cent stake in Carrizo's Eagle Ford Shale acreage in the US.

Of the US volumes, GAIL has sold 2 million tonnes of LNG to overseas users. "That LNG we do not see coming to India as we did not receive offers from domestic users for that. But we reckon some 3-3.5 million tonnes of US LNG will be consumed in India," the official said.

To trade in LNG on spot and short-term basis, GAIL had opened its LNG trading desk in Singapore in 2011 through its subsidiary, GAIL Global Singapore.

US shale gas price would be cheaper in the Indian market, as it is linked to the Henry Hub, a distribution hub on the natural gas pipeline system in Louisiana, where prices are in the range of USD 3-4 per mmBtu.