GAIL ties up Shell as a buyer for its LNG

GAIL ties up Shell as a buyer for its LNG

India’s flagship gas trading and marketing company GAIL (India) on Wednesday said it has entered into an agreement to sell liquefied natural gas (LNG) to Shell. GAIL’s chairman and managing director BC Tripathi said that a definitive agreement has been signed with Shell through its subsidiary in Singapore. However, he did not divulge the volumes or price at which the agreement has been sealed.

In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 million tonnes per annum (mtpa) of LNG from the Sabine Pass Terminal in Louisiana on FoB basis. Deliveries would start from January 2018. In April 2013, GAIL booked another 2.3 mtpa capacity to export LNG from the Dominion Cover Point terminal in Maryland.

Tripathi said that the gas to be imported from the US is expected to land on Indian shores at less than $9 per million British thermal units (mBtu). It has also firmed up another 0.5 mt sales with domestic buyers with retail and fertiliser units.

“We are not nervous, but we are cautious. We are evaluating the domestic market,” Tripathi said when asked if GAIL would be able to sell the entire LNG imported from the US in India. He did not rule out the possibility of selling more volumes overseas in a similar contracts as with Shell. “Many companies have shown interest (to buy LNG),” he added. Currently, spot LNG prices hover around $8-8.50 per mBtu, while LNG purchased through long-term contract arrives at $13-13.50 per mBtu. India buys 7.5 mtpa of LNG from Qatar’s Rasgas. The imported gas procured by Petronet LNG (of which GAIL is liable to take 60%) on long-term take-or-pay basis is now expensive compared with spot cargoes. Tripathi said that supplies from Qatar had been reduced by 30-35 per cent. GAIL has lost allocation of cheap domestic gas from the Reliance Industries-operated KG-D6 block for its petrochemical business and was forced to use LNG from Qatar, hurting its petrochemical earnings.

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