Putting a question mark over the business of natural gas imports, power and fertiliser companies, despite being starved of fuel and feedstock, have developed cold feet in picking up even the cheapest available LNG cargoes, calling them expensive.
Frustrated at this, public-sector GAIL India has warned in a letter to the power and fertiliser ministries that if these consumers don’t undertake to lift the cargoes from the US by January end, it might have to divert the LNG to global markets that would fetch the gas marketer more remunerative returns.
GAIL India had lined up imports of 6 million tonnes per annum (mtpa) of LNG from the US, eyeing consumers in the domestic power and fertiliser sectors. The LNG vessels are to reach Indian shores by 2017. LNG from the US is cheaper than that from other sources and is likely to be priced at $10-12 per million British thermal units (mmBtu).
The reluctance of power and fertiliser firms to agree to lift LNG from the US is despite the stagnant domestic production of gas and the widening demand-supply mismatch for the fuel/feedstock.
Prabhat Singh, director, marketing, at GAIL India told FE: “We have informed the two ministries (power and fertiliser) that we will wait till January end and if the LNG (from the US) is not picked up by then, we will try to sell it in the international markets. Though the cargoes will land in India starting 2017 only, we need to arrange for the shipping and transportation well in advance. After this (relatively cheap LNG), only more expensive LNG might be available for domestic users.”
Meanwhile, GAIL India is also negotiating on time swap arrangements with international suppliers to bring in the LNG at an earlier date.
Pertinently, both fertiliser and power units are pitching for a larger share of the domestically-produced cheaper gas, which is currently priced between $4.2/mmBtu for RIL’s KG-D6 gas and $5.73 per unit for the Panna-Mukta-Tapti gas.
However, domestic gas prices will rise from next year to a price determined on a quarterly basis by the Rangarajan formula that is indexed to global hub prices. But the Rangarajan-based price, estimated at roughly $7 based on the rates of reference prices currently, would still be lower than LNG prices.
Singh added that GAIL is quite keen to sell the US LNG to Indian buyers as this is the cheapest available long-term LNG linked to the Henry Hub rates,