GAIL to sign LNG deal with US company

State-run gas utility GAIL India is likely to sign a gas-supply agreement with Houston-based Vega Energy Partners shortly, sources said. The deal is for supplying gas to the Cove Point LNG Terminal project located at Lusby in Maryland, US.

"We have been looking to book gas supply for Cove Point and this deal would be a step forward," said an official from GAIL India, without divulging further details.

Vega Energy Partners is engaged in the management, optimisation, and development of natural gas assets.

The $3.8-billion Cove Point LNG project is owned by Dominion Cove Point LNG, LP with which GAIL had signed a terminal service agreement in April 2013 (through GAIL Global (USA) LNG LLC) for booking 2.3 million tonnes per annum (mtpa) liquefaction capacity in Cove Point LNG Terminal.

The project is being built by Dominion Resources - of which Dominion Cove Point LNG is a subsidiary - and it is expected to be completed in by June 2017. Although the official cited above refused to mention the pricing details and the quantity, he said GAIL has negotiated the gas at a competitive price and that it is not expensive. US gas, linked to US Henry Hub rates, would be cheaper than LNG imports from other countries. Cove Point is a premier facility in terms of direct access to the Marcellus and Utica shale plays, two of the most prolific shale gas basins in North America.

"Our upstream acquisition efforts for gas sourcing and hedging would now intensify in US. This deal would also provide GAIL with an opportunity to trade part of the volume in the international market apart from organising the ships required to transport rest of the volume to India," B S Tripathi, chairman and managing director, GAIL had said in April 2013.

GAIL had then said that it had a positive outlook on Henry Hub indexed LNG exports from US, which prompted it to sign this terminal service agreement.

"The contracts signed with Cheniere (Energy Partners) and Dominion make GAIL one of the largest Henry Hub LNG portfolio holders and provide us an opportunity to market about 6 mtpa of LNG from the US," Tripathi had said.

Under the terminal service agreement, GAIL will procure its own natural gas and deliver for liquefaction at the terminal. LNG will then be loaded into ships arranged by GAIL, which will pay service charges to Dominion Cove for liquefaction of natural gas.

GAIL already holds a 20 per cent stake in Carrizo Oil & Gas' Eagle Ford Shale and has a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from Sabine Pass Liquefaction, a subsidiary of Cheniere, from 2017-18.

Last month, the US Energy Department approved Dominion Resources' proposal to export liquefied natural gas from the Cove Point terminal.