State-run gas marketer GAIL (India) has drawn up plans to invest in upstream hydrocarbon assets overseas, including in the unconventional but fast-emerging area of shale gas acreages in the US, mainly eyeing the comfort such investments would bring to its LNG import business.
The gas trading and transmission company is willing to spend $500-700 million to pick up minority stakes in US shale assets and also some conventional hydrocarbon projects in Africa, according to its chairman and managing director, BC Tripathi.
With gas demand in India projected to far outstrip domestic production, GAIL has tied up LNG imports of 5.8 million tonnes (mt) a year from the US alone and the 20-year fuel supply in India would commence from 2017. Contracts for LNG imports of another 2.5 mt a year have been signed up with Russian gas firms.
Our interest in upstream business is different from that of pure-play exploration companies. Our motive is to secure gas supplies (rather than the returns from upstream activities). In the US, we have booked capacity (in LNG terminal) for which we need our own gas, Tripathi told FE.
The shale gas business, by the way, is a very lucrative one. For past several quarters, for instance, Reliance Industries investments in US shale assets ($3.44 billion so far) have been more profitable than its exploration and production business at home. For the first time, in the fourth quarter of FY14, RILs US revenues beat those of its Indian operations. The companys Q4 top line for US shale assets was R1,646 crore versus R1,417 crore from Indian E&P.
GAIL has already made an entry into the shale gas segment. In September 2011, it acquired a 20% stake in Houston-based Carrizo Oil and Gas Eagle Shale Ford for $95 million. Of the total value, it made upfront cash payment of $63.7 million, while another $31.3 million was linked to Carrizos further drilling and development cost. In FY13, GAIL garnered revenues of $21 million from the project and reported a profit after tax of $3.97 million.
GAILs acquisition of shale assets come at a time when India is aggressively looking to secure hydrocarbon assets overseas to meet increasing demand at home. In addition, GAILs experience in the business would give it an upper hand when India opens up for shale gas exploration, say analysts. Recently, the government gave nod to state-run players ONGC and Oil India to explore shale gas in