In an attempt to force local consumers such as power projects and fertilizer plants to finalize their purchase plans, state-owned gas supplier GAIL (India) Ltd is set to increase the domestic price of liquefied natural gas (LNG) by 10 cents per unit. Of the total 5.8 million tonnes (mt) of LNG it contracted with US suppliers, GAIL has found Indian buyers for only 2.5 mt. Major domestic consumers have refused to buy the rest 3.3 mt at current prices, which they perceive to be high. GAIL plans to sell at around $12-13 per million metric British thermal unit (mmBtu) in the domestic market. The planned ultimatum by GAIL, India’s largest gas transmission and marketing company, stems from the fact that its LNG deals are take-or-pay contracts, which means it has to pay the supplier even if it doesn’t take the supply. Natural gas is shipped in its liquid form and reconverted to gas at LNG terminals. India imported 13.43 mt of LNG in 2012-13, compared with 13.39 mt in the previous year.
“While all contracts are getting signed, for the ones remaining, we plan to increase the gas price by 10 cents per mmBtu. The earlier plan was to increase the price by October end. We now plan to do it by middle of November or latest by 1 December. We want to tell the market that this is the cheapest price available and if one doesn’t buy by then, one stands to lose,” said a senior GAIL executive requesting anonymity. GAIL’s move comes in the backdrop of the National Democratic Alliance government revising the current price of natural gas to $5.6 per mmBtu from $4.2 mmBtu. The prices will be revised every six months. GAIL stands to gain better margins by selling overseas. “To sell in the Indian market is our first choice. While we have been trying, we also have a take-or-pay situation. We have reached a conclusion. While we get a premium of around 20 cent per mmBtu in the domestic market, overseas customers are willing to pay us a premium of around $1.5-2 per mmBtu,” added the GAIL executive.
Queries emailed to a GAIL spokesperson on Thursday evening remained unanswered at press time. Mint reported on 17 June about GAIL’s inability to find domestic buyers and its ultimatum to domestic consumers to finalize their purchases by June-end, failing which it would sign deals with global buyers willing to pay a premium. “India may lose sizeable volumes of potential gas supply from RIL’s (Reliance Industries Ltd) KG-D6 and ONGC’s (Oil and Natural Gas Corp. Ltd) KG-DWN-98/2 blocks in case the companies find the resultant IRRs (internal rate of return) unattractive. This will result in higher LNG imports at global prices, about 2X the price set for domestic companies initially. India would be better off offering a higher price to its ‘own’ companies rather than to overseas companies for gas imports,” said a 22 October Kotak Institutional Equities report. India has also revived a plan for pooling of gas prices to bail out power projects starved of the cleaner fuel as compared to coal. Gas-fuelled power projects with an aggregate capacity of around 16,000 megawatts (MW) are operating at a low PLF (plant load factor). Also, around 7,815MW under construction or ready for commissioning have been stranded in the absence of gas allocation. “An innovative gas pooling mechanism would be good for stranded gas power projects, particularly in the (natural gas) deficit southern region. With increased gas price, hopefully, domestic gas production will increase, and this can be leveraged with imported R-LNG to achieve a 40-50% utilisation of power plants,” said Debasish Mishra, senior director, consulting, at Deloitte Touche Tohmatsu India Pvt. Ltd. “However, the catch will be to keep the blended gas price landed at the power plant around $10/mmbtu. If implemented, it will be positive for GAIL, both in terms of supplying contracted LNG and improvement in pipeline utilization,” added Mishra.
Meanwhile, GAIL’s net profit for the second quarter rose 42%. The state-owned firm posted a net profit of Rs.1,303 crore for the quarter ended 30 September, compared with Rs.916 crore a year earlier. Domestic gas sales have been sliding for GAIL. “During the second quarter of the current financial year, natural gas sales were 68.95 mmscmd (million metric standard cubic metres a day) against 78.58 mscmd during the corresponding period of previous year,” GAIL said. GAIL has entered a 20-year gas sales and purchase agreement with Sabine Pass Liquefaction Llc, a unit of Cheniere Energy Partners in the US, for 3.5 million tonnes per annum (mtpa) of LNG. It also has a terminal service agreement for 2.3 mtpa LNG liquefaction capacity with Dominion Cove Point LNG in the US. In addition, it has a 20-year LNG supply contract for 2.5 mtpa with Gazprom Marketing and Trading Ltd. In another development, GAIL on Monday announced signing a memorandum of understanding with state oil company of Republic of Azerbaijan (SOCAR) to jointly pursue LNG opportunities.
Source: Livemint
“While all contracts are getting signed, for the ones remaining, we plan to increase the gas price by 10 cents per mmBtu. The earlier plan was to increase the price by October end. We now plan to do it by middle of November or latest by 1 December. We want to tell the market that this is the cheapest price available and if one doesn’t buy by then, one stands to lose,” said a senior GAIL executive requesting anonymity. GAIL’s move comes in the backdrop of the National Democratic Alliance government revising the current price of natural gas to $5.6 per mmBtu from $4.2 mmBtu. The prices will be revised every six months. GAIL stands to gain better margins by selling overseas. “To sell in the Indian market is our first choice. While we have been trying, we also have a take-or-pay situation. We have reached a conclusion. While we get a premium of around 20 cent per mmBtu in the domestic market, overseas customers are willing to pay us a premium of around $1.5-2 per mmBtu,” added the GAIL executive.
Queries emailed to a GAIL spokesperson on Thursday evening remained unanswered at press time. Mint reported on 17 June about GAIL’s inability to find domestic buyers and its ultimatum to domestic consumers to finalize their purchases by June-end, failing which it would sign deals with global buyers willing to pay a premium. “India may lose sizeable volumes of potential gas supply from RIL’s (Reliance Industries Ltd) KG-D6 and ONGC’s (Oil and Natural Gas Corp. Ltd) KG-DWN-98/2 blocks in case the companies find the resultant IRRs (internal rate of return) unattractive. This will result in higher LNG imports at global prices, about 2X the price set for domestic companies initially. India would be better off offering a higher price to its ‘own’ companies rather than to overseas companies for gas imports,” said a 22 October Kotak Institutional Equities report. India has also revived a plan for pooling of gas prices to bail out power projects starved of the cleaner fuel as compared to coal. Gas-fuelled power projects with an aggregate capacity of around 16,000 megawatts (MW) are operating at a low PLF (plant load factor). Also, around 7,815MW under construction or ready for commissioning have been stranded in the absence of gas allocation. “An innovative gas pooling mechanism would be good for stranded gas power projects, particularly in the (natural gas) deficit southern region. With increased gas price, hopefully, domestic gas production will increase, and this can be leveraged with imported R-LNG to achieve a 40-50% utilisation of power plants,” said Debasish Mishra, senior director, consulting, at Deloitte Touche Tohmatsu India Pvt. Ltd. “However, the catch will be to keep the blended gas price landed at the power plant around $10/mmbtu. If implemented, it will be positive for GAIL, both in terms of supplying contracted LNG and improvement in pipeline utilization,” added Mishra.
Meanwhile, GAIL’s net profit for the second quarter rose 42%. The state-owned firm posted a net profit of Rs.1,303 crore for the quarter ended 30 September, compared with Rs.916 crore a year earlier. Domestic gas sales have been sliding for GAIL. “During the second quarter of the current financial year, natural gas sales were 68.95 mmscmd (million metric standard cubic metres a day) against 78.58 mscmd during the corresponding period of previous year,” GAIL said. GAIL has entered a 20-year gas sales and purchase agreement with Sabine Pass Liquefaction Llc, a unit of Cheniere Energy Partners in the US, for 3.5 million tonnes per annum (mtpa) of LNG. It also has a terminal service agreement for 2.3 mtpa LNG liquefaction capacity with Dominion Cove Point LNG in the US. In addition, it has a 20-year LNG supply contract for 2.5 mtpa with Gazprom Marketing and Trading Ltd. In another development, GAIL on Monday announced signing a memorandum of understanding with state oil company of Republic of Azerbaijan (SOCAR) to jointly pursue LNG opportunities.
Source: Livemint
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