Bloomberg News

GAIL Plans LNG Contracts Linked to Oil, Gas to Limit Price Risks

June 11, 2012

GAIL India Ltd. (GAIL) plans to buy 10 million metric tons a year of liquefied natural gas with purchases from around the world linked to different indexes in an effort to reduce price volatility.

GAIL, India’s biggest natural-gas distributor, is following Korea Gas Corp. (036460) and Mitsubishi Corp. (8058) in securing higher-priced, oil-linked LNG supplies from the Middle East and seeking cheaper, gas-indexed prices in North America, whose main benchmark price is Henry Hub, traded on the New York New Delhi-based GAIL plans to buy as much as 10 million tons a year by 2020 to bring into India’s Dahej, Kochi and Dabhol import facilities.

“We plan to buy a mix of LNG from the U.S. under Henry Hub and from Australia and other parts of the world,” Prabhat Singh, the company’s marketing director, said in an interview at the World Gas Conference in Kuala Lumpur last week. “We’re in talks with many suppliers. U.S. LNG is relatively affordable, and we’re looking for the right price at the right place.”

Cheniere Energy Inc. (LNG:US), with a contract to supply GAIL with 3.5 million metric tons a year of LNG, is using Henry Hub as the index, while Australia’s Gorgon project is using oil as the price basis for 1.5 million tons a year for Petronet LNG Ltd. (PLNG), a unit of GAIL.

U.S. producers including Cheniere want to attract buyers from Japan to India with shipments from eight proposed export terminals . While North American shipments could account for 10 percent of world LNG supplies, it’s unlikely that all the projects will start, according to Tokyo Gas Co., Japan’s biggest distributor.

‘Short Window’

OAO Gazprom, the world’s largest natural-gas exporter, agreed in June 2011 on preliminary long-term LNG supply deals with GAIL, Petronet LNG and Gujarat State Petroleum Corp. for a total of as much as 7.5 million tons annually.

“There are a few LNG projects coming up around the world, and we have a short window of signing deals with any company,” Singh said. “We’re confident we’ll get LNG at a price that suits us.”

U.S. exports to Asia would cost $9.35 per million British thermal units, based on a benchmark Henry Hub price of $3, according to a May 29 presentation by Cheniere. The Houston- based firm is building the nation’s largest LNG export terminal in Louisiana. Japan, the biggest LNG importer, paid more than $17 per million British thermal units in April.

Gas in New York is down 24 percent this year and fell to a decade low in April. The fuel dropped 1.7 percent to $2.26 per million Btu today on the New York Mercantile Exchange.

Floating Regasification

GAIL also plans to set up an LNG import facility using a floating regasification vessel, Singh said, giving no details.

The company has set aside $1 billion for shale-gas acquisitions and is looking at assets in the U.S. and Canada, Singh said at last week’s conference. GAIL bought a 20 percent stake in shale areas in the Eagle Ford region in Texas from Carizzo Oil & Gas Inc. for $95 million in September.

GAIL is in talks to buy gas from Freeport LNG Development LP’s proposed plant in the U.S., a person with direct knowledge of the matter said Jan. 16.

Japan’s Mitsui & Co. and Mitsubishi agreed to acquire a $2 billion stake in Woodside Petroleum Ltd.’s proposed Browse LNG venture in Western Australia and buy about 1.5 million tons of the fuel annually from the project. That followed China Petrochemical’s agreement last year to buy 7.6 million tons annually from a project in Queensland state led by Origin and ConocoPhillips.

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Dinakar Sethuraman in New Delhi at dinakar@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net


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Companies Mentioned

  • LNG
    (Cheniere Energy Inc)
    • $65.48 USD
    • 3.20
    • 4.89%
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