GAIL delays pipeline building on slow economy

By Nidhi Verma

NEW DELHI (Reuters) - India's biggest gas pipeline operator GAIL (India) has delayed construction of new pipelines as an economic slowdown has crimped demand for costly imports and domestic supplies are shrinking.

The delay will mean GAIL cuts capital expenditure nearly by 30 percent in 2014/15 to 36 billion rupees from the current fiscal year ending on March 31, 2014 and will also impact revenue.

"Overall economic sentiments are down, their (user industries') margins must be under pressure ... when the economy is down everybody feels the heat," Chairman B. C. Tripathi said.

Economic growth in India, the world's fourth-largest energy consumer, languished near its slowest in three years at 5.5 percent in the quarter that ended in June and industrial output in August slowed to 0.6 percent.

GAIL now cannot find clients for gas even at about $15 mmBtu, down from previous sales at $20 per mmBtu, because of the economic slowdown, Tripathi told a news conference.

That, combined with shrinking domestic supplies, has forced the state-run company to delay by one to two years plans to lay 4,000 kilometres of pipeline, Tripathi said.

"We are saying that we will build pipelines in synchronisation of supply of gas," he said, adding GAIL will still build branches to main pipelines to help transmit gas to user industries where required.

India's local gas output declined by an annual 14.1 percent in April-September, as production from a block operated by Reliance Industries fell to 14 million cubic metres from 60 mmcmd in 2010.

At the same time, liquefied natural gas (LNG) is expensive in Asia, costing about $17 per million British thermal units (mmBtu). In the United States, a boom in shale oil and gas has pushed down prices to below $4 mmBtu.

GAIL, which own 11,000 kilometres of pipeline network, is currently transmitting gas at a rate 100 million cubic metres a day (mmscmd) compared to a capacity of 210 mmscmd as supplies from Reliance's D6 block have almost dried up, Tripathi said.

A lack of pipelines has already forced Petronet LNG, India's biggest LNG importer, to cut capacity use at a 5 million tonne a year terminal in southern India.

(Reporting by Nidhi Verma; Editing by Jo Winterbottom and David Evans)