GAILs $3-billion pipelines on hold for want of buyers

Written by Pranav Nambiar | New Delhi | Updated: Dec 2 2013, 13:26pm hrs
The GAIL India has put two natural gas pipelines with envisaged investments of $3 billion on the back burner as the public-sector gas utility has not been able to find customers on these routes.

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RD Goyal, director (projects) at GAIL India, told FE that the domestic gas shortage and the high cost of imported or regasified liquid natural gas (R-LNG) have meant that the pipelines will not be able meet the 50-60% utilisation levels essential for them to remain commercially viable.

Chairman BC Tripathi had, in the recently held second-quarter results conference, mentioned that the company is going slow on its pipeline expansion plans. In the current economic climate GAIL cannot find clients for gas even at about $15 per million metric British thermal units (mmBtu), compared with past sales at $20 per mmBtu. Therefore, GAIL is now adopting a strategy of synchronising pipeline construction with the supply of gas.

For the Jagdishpur-Haldia pipeline we had appointed technical consultants and completed the design and for Surat-Paradip we have not done anything so far. Until we feel that gas is of that value that customers will come and pay for it, we will not make the planned investment of around $3 billion, said Goyal.

The availability of domestic gas has fallen over the last two years to 101 million metric standard cubic metres per day (mmscmd) in FY13 from 143mmscmd in FY11. This was mainly due to a fall in production at the KG-D6 block from 56 mmscmd in FY11 to 26 mmscmd in FY13. On the other hand, R-LNG imports in FY 13 stood at around 46 mmscmd and is expected to touch 188 mmscmd by 2020-21, when India will likely become a net importer of gas.

While domestic gas is priced at $4.20/mmBtu, R-LNG is at least three times more expensive.

Goyal said that the major customers of gas are from the power, fertiliser and refineries sectors, and the R-LNG prices are not commercially viable for these entities.

NTPC, for instance, has refused to take 2 mmscmd of R-LNG under a long-term contract with GAIL as it is unable to find buyers for power at such high fuel prices. Power at this price of gas will be well over Rs 10 per unit, it unattractive to state utilities.

The Rs 7,600-crore investment approval for laying the Jagdishpur-Haldia pipeline was granted by the GAIL board in July 2009. The 2,050-km pipeline was intended to be go through West Bengal,

Jharkhand, Bihar and Uttar Pradesh. Reliance Gas Transportation Infrastructure (RGTIL) was earlier expected to set up a 1,100-km pipeline from Kakinada to Haldia to ferry natural gas from KG-D6.

The pipeline was planned to revive several defunct fertiliser units in its path. We understand from the media that the government has decided to put up six new plants which might be the conversion of existing plants or some greenfield projects. But we will wait till something concrete emerges as we are willing to construct the pipelines if we get customers, said Goyal.

GAIL won the bid to construct the 1,500-km Surat-Paradip pipeline in 2011 that would connect Gujarat, Maharashtra, Chhattisgarh and Orissa. The pipeline was planned to have a capacity to transport up to 60 mmscmd of gas entailing an investment of around Rs 9,000 crore.

GAIL operates a pipeline network of around 11,000 km and currently transmits only around 100 mmscmd compared to a capacity of 210 mmscmd. This translates into a pipeline utilisation of just around 48%.