GAIL (India) Ltd is in talks with five-six players, including Macquarie Energy, to source liquefied natural gas (LNG) to meet domestic demand.
Sources said the company was in advanced stages of discussions with some major global LNG players. However, nothing has been concluded as yet. Pricing of gas will be key to GAIL firming up the deal, sources added.
The price of gas should be attractive enough for GAIL to get it into India, sources said. If the gas is sourced from the US, then it will be linked to Henry Hub (which decides futures gas price at New York Mercantile exchange) basis. The current Henry Hub price is $3.5/mBtu. The landed price in India will be higher, as it will include costs of liquefaction, loading, shipping, re-gasification, transmission, marketing margins, as well as local taxes and levies.
Macquarie Energy, Macquarie Group's North American energy marketing and trading arm, and Freeport LNG Expansion LP, are jointly developing and marketing liquefaction capacity at the LNG import terminal in Freeport, Texas, US. Indications are that GAIL is in talks for two million tonnes per annum long-term LNG contract with them.
This will not be GAIL's first deal in the US market. Recently, it contracted for supply of 3.5 million tonnes per annum LNG with Sabine Pass Liquefaction, LLC, a subsidiary of Cheniere Energy Partners, L.P.
The company has signed sales and purchase agreement for supply of LNG for over 20 years beginning 2017. Under the agreement, GAIL will pay for gas on a Henry Hub. According to GAIL, the agreement has an extension option of up to 10 years for supplies. The bridging supplies of LNG will start from 2016.
Currently, the company is importing approximately one or two cargo a month of LNG to meet domestic demand. The prevailing price of LNG in the global market is $12-15/mBtu. In the domestic market, LNG from long-term contracts is being sold at about $8.5/mBtu, while that from spot is being sold at a higher price.