[NGW Magazine] Gail gets creative with gas

This article is featured in NGW Magazine Volume 2, Issue 12

By Shardul Sharma

Gail’s gas portfolio is expanding with its spot purchases and existing LNG deliveries from Qatar – via Petronet – joining long-term commitments it has with US LNG operators.

India’s biggest gas transportation and marketing company Gail will be marketing 9mn metric tons of LNG in the year to March 31, 2018 – 60 cargoes – compared with 8.5mn mt last year. The year after next the company is expected to market 9.5mn mt of LNG, its CEO BC Tripathi told journalists May 23 in Mumbai. 

The 55 LNG cargoes that Gail imported last year through spot purchases as well as short- and medium-term deals last year were over and above the LNG that it gets from Qatar. India’s biggest LNG importer Petronet LNG has a long-term deal with Qatari RasGas to import 7.5mn mt/yr of LNG, of which almost 5mn mt/yr goes to Gail. Late 2015, Petronet LNG and RasGas signed a revised deal.

However, Tripathi said from next year some of these 55 LNG cargoes will come from the US. Gail has an agreement to buy 3.5mn mt/yr of LNG from Sabine Pass on a free-on-board basis for 20 years. It also has a second 20-year deal with Dominion Resources for 2.3mn mt/yr of LNG. Out of the total 5.8mn mt/yr LNG that is contracted, Gail has already sold about 0.5mn mt, so from next year the company will get a little over 5mn mt/yr of LNG for its own purposes. The supplies are expected to begin March-June next year.

In order to keep down the cost of its US supplies, Gail has entered into a swap deal to sell some of that LNG. Tripathi said under the agreement, Gail will get 15 cargoes or about 0.8mn of LNG from a trader and in return the company will sell 10 cargoes or about 0.6mn mt from Sabine Pass next year. The idea is to trade US LNG in exchange for supplies shipped from projects closer to home.

Ratnagiri Gas and Power Private rejig

Tripathi said the 1.967-GW Ratnagiri power plant was producing just 500 MW of power and its 5mn mt/yr LNG import facility was grossly underutilised at just 1.5 mt/yr in the absence of a breakwater to shield the port from high tidal waves. He further stated that the project is being demerged by separating the power and LNG units. Gail will have about 70% stake in the demerged LNG unit while NTPC will control the power unit. The new LNG unit will become a Gail subsidiary eventually.

At the moment Gail and utility National Thermal Power Corporation (NTPC) each have a 25.51% stake and the rest is owned by the Maharashtra government, financial institutions and banks. The company was set up to take over and revive the assets of Dabhol Power Company. RGPPL owns an integrated power generation and an LNG facility.

The capacity utilisation of the LNG unit is expected to rise from 1.5mn mt/yr to 2.5mn mt/yr in the near future, Tripathi said, and once the breakwater is in place, it will rise further, to 4mn mt/yr. The company will spend about rupees 10bn ($150mn) building the breakwater for which a contract will be awarded soon. Last year the LNG plant regasified 16 LNG cargoes, Tripathi said.

Gail reported its results May 22 and said that its net profit in the quarter ending March (4Q) dropped almost 69% to rupees 2.6bn. The fall was due to impairment of investments of rupees 7.83bn in RGPPL. The quarterly profit without the impact of the above impairment is rupees 10.4bn, which is higher by 25% year-on-year. 

New demand 

In India, traditionally power and fertilizer sectors have been the two biggest consumers of gas. However, the city gas sector – chiefly households – is emerging as the fast-growing area of demand. According to Tripathi, domestic gas demand is set to rise as more and more households are being connected to the pipeline network. 

Cities like Mumbai, Delhi and Bangalore are seeing the fastest growth. More cities, especially in the under-served eastern states of India are expected to get piped gas networks. Gail is working on the ambitious $2bn Jagdishpur-Haldia-Bokaro-Dhamra Natural Gas Pipeline (JHBDPL). The 2,539-km pipeline is expected to be fully completed by December 2020. 

The first phase of the pipeline will be complete by end-2018 and the second phase by end-2019. This pipeline will connect the eastern states of Uttar Pradesh, Bihar, Jharkhand, West Bengal and Odisha. 

The government of India will partially fund the gas pipeline project. The project will also see city gas distribution networks set up by Gail India in seven important towns in eastern India, namely, Varanasi, Patna, Ranchi, Jamshedpur, Kolkata, Bhubaneshwar and Cuttack. 

LNG in transportation sector is another area which has a huge demand potential. The Indian government recently approved LNG as transport fuel and a small pilot project is already running in south Indian city of Kochi where LNG power bus is plying the city roads. 

Gail too has begun work on this sector and is talking to companies from US and China to run a pilot project in India. Tripathi believes it will take a few more years before India has a full-fledged ecosystem for LNG based transportation. 

In India, power sector has been an important consumer of gas. However, the high price of imported LNG a few years ago led many gas-based power plants to close down. There is 24.15 GW of gas-fired capacity in India, of which about 14 GW had no supply of domestic gas. 

Although LNG prices have fallen in the recent past and many gas-based power plants have restarted, the overall attractiveness of coal is posing a big challenge to the gas-based power generation. 

Gail believes that for gas to find its deserved place in Indian energy basket, a lot of hand holding and support would be needed from the government when it comes to policy making. To begin with the government needs to rethink its decision to keep natural gas out of the new goods and services tax (GST) regime which is expected to apply from July 1.  

GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India to replace taxes levied by the central and state governments. The government has decided to temporarily keep gas and other hydrocarbons out of GST but has kept coal in the lowest 5% bracket. 

This not only distorts the gas market but also creates difficulties in marketing gas as different states would continue to impose different taxes. Industry representatives have met with the Indian oil minister regarding this and the minister has assured that this message will be conveyed to the finance minister. 

To make gas based power more affordable, Tripathi has suggested that natural gas based power be bundled with solar based power. Fierce competition has driven down the retail price of solar power in recent months. Tripathi believes gas-based power can be bundled with it to bridge the demand for power when solar power is unavailable during the evening and night hours.