GAIL in talks with US, Russian LNG suppliers to sweeten long-term contracts

India has long-term LNG supply contracts with countries like Qatar, Australia, and Russia. (Representative image)

GAIL India, the public sector gas transmission major, is in talks with US and Russian LNG (liquefied natural gas) suppliers to secure relaxation in long term contracted gas prices, and volumes to mitigate the losses, due to drop in consumption after Covid induced lockdown since March 24. As against the higher long term contracted price of LNG the spot prices of gas on the US benchmark, Henry Hub fell 12.31% year-to-July 20, to $ 1.71 per mmBtu.

According to company sources close to development, the oversupply of gas and the drop in consumption of gases in India due to Covid, has given rise to concern over prices of gas. “Per-se, we are not terminating any of the contracts because we will consume them later when the new fertilizer plants will come up in places like Durgapur and Gorakhpur. We are taking up the matter with the suppliers to give relaxations in prices and in the supply of LNG as per our requirement and consumption pattern,” sources said.

Gail’s gas supply to fertilizer sector has increased to 43 million metric standard cubic meter per day (mmscmd) as of today from the average of 37mmscmd in FY20 or 11-12 mmscmd during the complete lockdown phase in April. “Power sector has also caught up, but the city gas distribution sector is still down, barring the piped natural gas segment that supplies to residential areas. We expect to an increase of 11-12 mmscmd of gas supplies once all the five Fertiliser plants come up by December 2021,” sources said.

The company is also taking up the matter with suppliers to reschedule, as well as postpone some of the cargoes to reduce their losses. “As of now we have got very little in terms of relaxations, but we are pursuing with them to secure the relaxation in pricing and quantity as domestic consumption and spot prices have dropped substantially,” sources said.

“Though we want to match the long term contracted price to the current spot price, it is going to be difficult,” sources said. The current landed price for long term contract is around $7-$8/mmBtu and the landed price for a spot gas is around $5/mmBtu.

The company plans to get around 90 cargoes from the US in FY21, which accounts for 36% of the total 250 cargoes or 14 million metric tonne per annum (mmtpa) that will be sourced during FY21. GAIL has a long-term contract for 5.8 million mt/year of US-origin LNG, along with long-term swap contracts in place until March 2022. India has long-term LNG supply contracts with countries like Qatar, Australia, and Russia.

From Russia, GAIL sources around 2.5 mmtpa of gas which will increase to 2.75 mtpa in coming years. Petronet LNG, another state-run company, is expected to supply around 70 cargoes or around 4-4.5 mmtpa, to GAIL in fiscal 2020-21.

India, the third-biggest energy consumer after the US and China, aims at securing 15% of its total energy mix from natural gas by 2030, up from current levels of about 6%. The Prime Minister Narendra Modi-led government’s focus on raising the share of gas in the overall energy mix has attracted the interest of global giants like ExxonMobil and Total in the Indian gas market.