February 24, 2020 / 11:45 AM / 3 months ago

India's GAIL says sustained cheaper spot LNG prices are the biggest risk

NEW DELHI (Reuters) - India’s top gas utility GAIL (India) Ltd sees the falling spot price of liquefied natural gas (LNG) as the biggest risk to its business, its chairman Manoj Jain said on Monday.

The logo of India's state-owned natural gas utility GAIL (India) Ltd is pictured on its corporate office building in New Delhi, April 26, 2018. REUTERS/Adnan Abidi/Files

Spot prices of LNG in Asia hit a record low around $3 per million British thermal units (mmBtu) this month, making supplies of gas under previously agreed long-term deals unattractive for some price sensitive customers in India.

GAIL over-committed to new LNG volumes through long-term deals with the U.S. and Russia earlier this decade when supply was scarce and buyers rushed to secure deals. Spot prices at that time were in the double-digits.

“The biggest risk is about the present prices of gas...The gap between spot and long-term is widening and that is a cause of concern for us,” Jain said as he addressed the media for the first time since becoming chairman last week.

He said GAIL had resold most of its LNG purchases under the long-term deals but up to 30% was still an open position.

“The prices are down in the spot (market) and if it takes a longer period to reach to a viable level then there would be significant risk”.

GAIL has deals to buy 5.8 million tonnes per annum (mtpa) of LNG from the U.S. and up to 2.5 mtpa of LNG annually on a delivered basis from Russia’s Gazprom.

The landed price of LNG under the deal with Gazprom is currently around $7.5/mBtu.

GAIL renegotiated its contract with Gazprom in 2018, and the Indian oil minister at end-2017 told lawmakers that the company was looking at renegotiating contracts with U.S. companies.

“We are looking at it and at an appropriate time we will make a commercial call,” Jain said, when asked if his company would renegotiate deals with the U.S. and Gazprom.

“There is a need to realign the long-term contracts looking at the current situation”.

Prime minister Narendra Modi wants to increase the share of gas in India’s energy mix to 15% by 2030 from about 6.2% now. However, inadequate infrastructure, including pipeline and gas import facilities, have curbed gas demand.

GAIL expects India’s annual gas demand growth to double to 6%-8% in 3-4 years by which time new gas pipelines will be laid to connect industries and households, Jain said, adding cheaper spot LNG has already attracted some power plants to the cleaner fuel.

GAIL and its joint ventures will invest 1.05 trillion rupees ($14.61 billion)over five years, with about half of that spent on laying around 7,000 kilometers of new pipelines, Jain said.

It expects its 5 mtpa Ratnagiri LNG terminal to operate at full capacity in 2022 when a breakwater is built. The terminal currently operates at 2 mtpa capacity.

($1 = 71.8700 Indian rupees)

Reporting by Nidhi Verma; Editing by Kirsten Donovan

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