GAIL India Ltd will import about 5 million tonnes (MT) of LNG from the US next fiscal, replacing the volumes the state-owned utility buys from the spot market, a senior company official said.
GAIL has contracted 5.8 MT per annum of liquefied natural gas (LNG) from the US, some of which it has swapped – either by exchanging the gas with someone having it nearer to India or by time-swapping it.
“We expect to receive about 5 million tonnes of LNG from US next fiscal (2018-19),” the official said.
This will be used for replacing the LNG that GAIL currently buys from the spot or current market as well as on short term contracts.
“Out of our LNG buying of about 33 million standard cubic meters per day (8.25 MT per annum), only 17-18 mmscmd comes from long-term contract with RasGas of Qatar. The rest is all spot or short term contract volumes, which we hope to replace with US LNG,” he said.
The official said the company sold a “major chunk” of the US LNG via time swaps, destination swaps and shipping optimisation. Under the time-swap deals, the company will buy LNG from international companies this year and sell equivalent amount of Henry Hub-indexed volumes during 2018-19.
Besides, to cut shipping costs, it has entered into deals to take deliveries of gas from a nearer location and in exchange given its US volumes to company closer to the origin. The official said some of the time-swapped volumes have started arriving in India but refused to give details.
GAIL has a deal to buy 3.5 MT a year of LNG for 20 years from Cheniere Energy of the US and has also booked capacity for another 2.3 MT at Dominion Energy’s Cove Point liquefaction plant. The company expects US LNG supplies to begin from March/ April next year, he said.
GAIL had contracted LNG from the US to meet the demand of growing Indian economy with power sector being considered as a major buyer. But electricity produced using imported LNG is not finding buyers due to cheaper alternatives including renewables, leading to stranding of significant capacity out of 25,000 MW of installed gas based power plants.
GAIL had in May signed a first-ever time-swap deal to sell some of its US LNG. Under the agreement, it will get 15 cargoes or about 0.8 MT of LNG from an unnamed trader this year.
In return, GAIL will sell 10 cargoes or about 0.6 MT next year from Sabine Pass on the US Gulf coast. GAIL had separately signed a deal with Royal Dutch Shell to sell about 0.5 million tonnes of its US LNG.
The LNG that GAIL will receive this year between April and December under the time-swap deal will be at oil-linked prices. The sale of US gas next year will be at a premium to its pricing formula on a free-on-board (FOB) basis.