State-owned utility GAIL India has signed three time-swap deals to sell some of its US liquefied natural gas (LNG) as it rejigs the supply portfolio in line with domestic demand.
Under the deals, the company will buy LNG from international companies this year and sell equivalent amount of Henry Hub-indexed volumes during 2018-19, GAIL said in its Annual Report.
It is also seeking destination swaps to cut shipping costs of US LNG.
GAIL has a deal to buy 3.5 million tonnes a year of LNG for 20 years from Cheniere Energy of US and has also booked capacity for another 2.3 million tonnes at Dominion Energy's Cove Point liquefaction plant.
The company said it had contracted LNG from US to meet the demand of growing Indian economy with power sector being considered as a major buyer.
But electricity produced using imported LNG is not finding buyers due to cheaper alternatives including renewables, leading to stranding of significant capacity out of 25,000 MW of installed gas based power plants.
To mitigate the risks, GAIL said it is exploring opportunities to market Henry Hub indexed LNG volumes in the international markets either directly or through Singapore based subsidiary, GGSPL.
GAIL said it "has already concluded three time swap deals, where-in LNG volumes are purchased from international parties during financial year 2017-18 with an agreement to sell equivalent volumes of Henry Hub volumes during FY 2018- 19".
It added: "In parallel, your company is also making efforts to optimise Henry Hub LNG through destination swap transactions that could significantly reduce cost of shipping (US) LNG to the Indian ports resulting in improved affordability for the Indian customers."
Without giving the volume swapped, the company said a "substantial" US volume has been swapped.
"Over the last few quarters, your company has concluded various deals towards de-risking the portfolio significantly and also executed swap structures to ensure competitive delivery based pricing at Indian terminals.
"Residual volumes too are expected to be tied-up based on the encouraging response received from the domestic and overseas market participants," the annual report said.
GAIL had in May signed a first-ever time-swap deal to sell some of its US LNG.
Under the agreement, it will get 15 cargoes or about 0.8 million tonnes of LNG from an unnamed trader this year. In return, GAIL will sell 10 cargoes or about 0.6 million tonnes next year from Sabine Pass on the US Gulf coast.
GAIL had separately signed a deal with Royal Dutch Shell to sell about 0.5 million tonnes of its US LNG.
The LNG that GAIL will receive this year between April and December under the time-swap deal will be at oil-linked prices. The sale of US gas next year will be at a premium to its pricing formula on a free-on-board (FOB) basis.
GAIL said it is trying to market LNG to anchor customers such as refineries, steel plans along planned and existing pipelines. It is also in talks to supply LNG to new fertiliser plans and expect firm agreements in 2017.
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