GAIL targets bigger presence in global LNG trading

GAIL wants to boost its liquefied natural gas (LNG) portfolio to 20 million tonnes a year in the next seven years through acquisitions and supply deals so that it can beef up trading of the super-cooled gas, Chairman B.C. Tripathi said.

Tripathi's comments to Reuters in an interview late last week mark the first time GAIL (India) Ltd has detailed its long-term LNG goals and show how the state-run pipeline monopoly is diversifying its business mix to gain from a surge in demand for the cleaner fuel at home and overseas.

The first Indian firm planning to carve a niche in LNG trading, GAIL has already tied up supplies for nearly 15 million tonnes a year. But supply agreements on some of that capacity is set to expire in the next few years, meaning it will have to strike fresh deals to replace that.

"Overall (in its) portfolio, GAIL will have 20 million tonnes by 2020," said Tripathi, who has steered GAIL's transformation from its focus on domestic pipeline operations since he took the helm in August 2009.

Tripathi did not say how much GAIL will be spending to achieve its LNG ambitions but added that its trading team in Singapore will treble to six from the current two as of June.

GAIL, in which the Indian government holds a 57.4% stake, runs about 10,000 kilometres of gas pipelines in the country. It also operates one of India's three LNG terminals.

The company currently sells 6.5 million tonnes per annum (mtpa) of LNG locally, sourced from Qatar's Rasgas under a long-term contract and through small deals with GDF Suez and Spain's Gas Natural Fenosa (GNF) which end in 2015.

From 2017, a 20-year deal with Russia's Gazprom to buy 2.5 mtpa LNG will commence.

In 2011, GAIL became the first Asian buyer to lock in LNG supplies with prices linked to the U.S. gas market and it now plans to have half of its purchases based on U.S. prices by 2017, according to Tripathi. The U.S LNG exports are likely to start in 2016/17, he said.

"Almost 50% of LNG in our basket will be JCC (Japan Customs Cleared Crude) linked in 2017 and 50%  will be (U.S.) Henry Hub-based," the GAIL chairman added.

U.S. ASSETS TARGETED

LNG is expensive in Asia, at more than $15 per million British thermal units (mmBtu), as it is linked to oil, while a boom in U.S. shale gas output has pushed down prices there to just over $4 per mmBtu.

GAIL plans to buy about 6 mtpa Henry-Hub linked LNG from the United States. It already has 3.5 mtpa on a free-on-board (FOB) basis for 20 years from Cheniere Energy beginning in 2017.

The company has also booked capacity to export another 2.3 mtpa at U.S.-based Dominion Energy's Cove Point liquefaction plant from 2017.

Tripathi said that GAIL hopes to acquire more gas exploration assets in the United States as it wants half of the volume that will be liquefied at Cove Point to come from its own production and the remainder through long-term deals.

He said GAIL is looking at buying an equity stake in a U.S. asset which is heading into production by 2016/17. GAIL is evaluating several offers, he said, but declined to give details.

Earlier this month, Tripathi said the company was in advanced talks to buy U.S. shale gas assets.

U.S. gas exports are likely to start sometime in 2017 and GAIL could either bring supplies to India or trade them.

To transport gas from the United States, GAIL wants 9-10 LNG carriers and plans to float a tender by July for them, Tripathi said, adding his company has yet to finalise specifications.

GAIL could consider an equity stake in the carriers or charter only, or a combination, he added.