GAIL reins in LNG plant as high prices hit

NEW DELHI (Reuters) - High prices have hit demand for liquefied natural gas (LNG) so hard that GAIL , the country's biggest pipeline operator, is running its plant at a fraction of its capacity, Chairman B.C. Tripathi said on Wednesday.

Asian LNG prices linked to oil are about four times the cost of natural gas in the United States, where a boom in shale oil and gas has sharply reduced prices.

India, Japan and other Asian countries that together import 70 percent of the world's LNG met in December to discuss forming a buyers' club to get a better deal from suppliers.

Japan's Chubu Electric Power Co has said it is close to signing a preliminary deal with GAIL to buy LNG together and Tripathi said on Wednesday it would be "about sourcing, swapping, trading and supply.

Tripathi said GAIL was operating its LNG plant at 0.8 million tonnes a year (mtpa) capacity compared with an estimated 3.5 mtpa.

GAIL along with power firm NTPC , operate the Dabhol LNG terminal.

"Dabhol can operate at 3.5 million tonnes (a year). But the question is you should have so much of demand in the country and capacity to absorb at that price. LNG prices are very high in the market," Tripathi said.

India currently imports LNG from the spot market at about $17-$18 per million British thermal units. "There is no appetite at those prices," he added.

Softening demand for LNG along with declining local gas output has resulted in some pipeline projects getting delayed while a few others are operating at less than 10 percent of capacity, Tripathi said.

GAIL has a deal to buy 3.5 mtpa of LNG for 20 years from U.S.-based Cheniere Energy from 2017 and has booked capacity to export another 2.3 mtpa at U.S.-based Dominion Energy's Cove Point liquefaction plant from 2017.

GAIL is keen to swap 2 million tonnes of LNG from these U.S. deals with those available in other regions to cut transportation costs for supplies to India, Tripathi said.

(Editing by Jo Winterbottom and David Evans)