India's Gas Demand Mostly About Price: Gail

India’s gas demand will grow more or less strongly according to the price of other fuels, according to the director of marketing at Gail (India) Gajendra Singh.

India imports 20mn mt/yr of LNG, of which 14mn mt/yr by Gail. Of that 14mn mt/yr, 60% is priced against dated Brent and the other 40% is priced against the US Henry Hub gas price. 

He told NGW that there might be the need to buy some 30mn metric tons/year LNG equivalent to supply India's almost 25 GW of connected and commissioned, but currently idle, gas-fired power capacity; but for now, coal and renewables are cheaper. “We are pursuing this with the government,” he said on the sidelines of Gastech conference in Barcelona September 20. “Thermal [gas] power should have an advantage so it can compete. We are pushing for some cost advantage for the cleaner fuel,” he added, which could include carbon pricing that would hit coal harder than gas.

It is unknowns such as this that make it difficult to work out how much gas Gail – an aggregator for India’s city gas distributors – needs to buy. However, there is the need for at least some more because demand for domestic heating and cooking, for transport and for the power sector is growing in aggregate at 14%/yr as the low-pressure grid is expanding rapidly.

But Gail's own customers do not want to buy for more than five or six years out as they cannot foresee their own demand as competition from other fuels rises. Gail's own long-term purchase contracts might be for three or four times that length.

Gail at the moment offers its customers contracts linked to US gas prices, oil prices or a mix of the two, or of other liquid fuels.

According to some industry observers, Asian spot LNG prices for the winter are at parity with long-term LNG purchase agreement linked to dated Brent; but in the past few years its own customers have complained that the oil-indexed LNG price had – after the oil price collapse of 2014 – no relation with the LNG market.

Gail had some success in negotiating with three of its major long-term suppliers – RasGas in Qatar, ExxonMobil (Gorgon LNG) and Gazprom, all of which sell on oil-indexed terms – but Singh stressed it was achieved on a “win-win” basis. So price reductions or lower take-or-pay commitments than the original 100% would be matched with contract extensions or carry-over of take-or-pay gas. “I have to say it is a complete package,” he said. 

Gail is also in talks, so far inconclusive, about the possibility of renegotiating its US LNG contracts: one is with Cheniere and one with Dominion. Both are indexed to the most liquid US gas hub, the Henry Hub. “If one link in the supply chain breaks, the whole chain collapses,” he said, explaining the benefit of collaboration. But for now he said those US prices are fine.

While US Permian Basin gas is attractively priced - it is often incidental to oil production, priced off the Waha gas hub, and thus cheaper than Henry Hub - Singh said also that domestic Indian production is due to grow, assuming that the plans submitted to the government materialise. He said that Indian domestic gas is the cheapest: “By 2021 there will be an extra 15mn mt/yr equivalent of domestic gas production." At the moment, wellhead prices are reset at six-month intervals, output from the high pressure high temperature fields being sold at $6.70/mn Btu and other gas at $3.06/mn Btu, he added.

So US gas at $3.50/mn Btu such as Tellurian is offering – along with an equity stake – would compete with the former, but not the latter. But it depends on the price of Indian gas production, and on the power-generation market some years into the future, these being among the many known unknowns that Gail has to handle.