GAIL India to skip mid-term LNG deals for 2018 due to US imports

MUMBAI (Reuters) — GAIL (India) Ltd will skip medium-term LNG deals for 2018 as it starts getting supplies from its US portfolio from February, its head of finance said.

“... We used to buy every year one medium-term contract to cater to domestic demand. This year, we are not doing it. So we will be catching that volume from US volumes,” Subir Purkayastha told an analyst conference call last week, according to a transcript made available to Reuters on Tuesday.

GAIL, India’s biggest natural gas transmission and marketing company, has signed contracts for sourcing up to 5.8 MMt of LNG from the United States.

The company is also likely to cut its spot purchases once volumes from the United States begin, Purkayastha said, adding that in 2018 GAIL expects to obtain close to 80 cargoes from the United States.

The company currently sells close to 35 MMcmd of super-cooled gas, of which close to 17 MMcmd is procured through medium-term and spot purchases.

India wants to raise the share of natural gas in its energy mix to 15% in the next few years from about 6.5% now. But price-sensitive customers in the South Asian nation forced renegotiation of the price of two long-term LNG deals.

Pricing of US LNG is linked to a formula but other charges including freight to India add an extra $2–$3 per MMBtu, leading to GAIL scouting for destination, time and volume swap deals.

Purkayastha said GAIL has swapped about 30% of its US volumes through destination swaps. The company has kept some US volumes for trading, while selling some through time-swap and direct sales in international markets.

“So for 2018, we are now quite comfortable,” he said.

In March, GAIL India signed its first time-swap deal with Swiss trader Gunvor to sell some of its US LNG. It has also sold some of the US volume to Shell.

India’s gas demand could rise by about 10% in 2018/19 from about 140 MMcmd now as the country expands capacity of power generation and fertilizer production.

India’s oil minister Dharmedra Pradhan asked state-run companies on Tuesday to boost supply of gas and alternate fuels in the states where use of petcoke and furnace oil is banned to cut emissions.

Gas demand in the country will further rise when three new fertilizer plants begin operating in 2020/21 and that would help absorb some of the US LNG, Purkayastha said.

Reporting by Promit Mukherjee and Nidhi Verma; Editing by Adrian Croft

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