GAILs LNG plan could be Holy Grail for shipyards

Written by Vaishnavi Bala | New Delhi/Mumbai | Updated: Jan 20 2014, 05:44am hrs
GAILGAIL will also consider engaging SCI as its post-fixture manager to manage the carriers on its behalf
A new robust market is opening up for Indian shipyards public and private. GAIL Indias intention to invite a global tender from shipping lines for arranging a host of liquefied natural gas carriers is likely to ensure domestic shipbuilding firms participation in the same.

Having firmed up plans to import 5.8 million tonnes per annum (mtpa) of LNG from the US over 20 years starting 2017, GAIL will require as many 12 LNG vessels at its disposal for this business, implying tenders worth $2.4 billion would need to be floated soon. Sources said the public sector gas utility would ask shipping lines to ensure that foreign shipyards partner with their Indian counterparts as they place bids. These tie-ups, GAIL reckons, would enable Indian shipbuilders to get the know-how for making these specialised vessels.

The helping hand for Indian shipyards comes at a time when many of them especially those in the private sector which dont enjoy the privilege of assured orders from the Indian Navy and Coast Guard are facing flat revenues due to the economic slowdown.

In June last year, GAIL and Shipping Corporation of India signed a memorandum of understanding (MoU) for transporting LNG sourced from Sabine Pass and Cove Point terminals in the US. Under the MoU, SCI would assist GAIL in the charter hiring of LNG ships and GAIL would assign step-in rights to SCI to take a 26% equity stake in each LNG carrier while GAIL would retain a similar right for a 10% equity participation.

Besides, GAIL will also consider engaging SCI as its post-fixture manager to manage the carriers on its behalf.

Over the past seven years, foreign shipyards delivered five membrane-type LNG ships each of a capacity not less than 135,000 cubic metres to GAIL India.

Oil ministry sources say that assurances were given to Indian shipyards of their participation in these tenders at a meeting called by petroleum secretary Vivek Rae on December 24. Pipavav Shipyard, L&T Shipyard and ABG Shipyard, among others, were present at the meeting, also attended by senior GAIL officials.

Indian shipyards have no experience in building LNG containers. The government aims to boost the expertise of domestic shipyards through this effort, said an oil ministry official. Apart from the private firms, public-sector Mazagon Dock, Cochin Shipyard and Garden Reach Shipbuilders and Engineers could benefit from the petroleum ministry-GAIL move.

ABG Shipyard CFO Dhananjay Datar said: Although we are looking forward to this opportunity that is coming our way, we need more clarity on how this will pan out. None of the Indian shipyards have entered this (LNG) field and we do not have the technology to make LNG carriers. There needs to be collaboration with foreign shipyards for the technology part. The investment to be put in will depend on the orders we get and the expertise of the foreign partner.

Analysts say that for 5.8 mtpa of LNG to be transported from the US, at least 12 ships are required if they are in water continuously without a break. To take into account the maintenance work that ships need to undergo, the number of ships can go up to 15 for the entire transportation. An LNG carrier of 160,000 cubic metres costs about $200 million and depending on capacity this can go up to $250 million. So for 12 ships, the total cost for constructing the ships would be about at least $2.4 billion.

Currently, even SCI is focused on getting its LNG carriers from Japan and South Korea. Companies like Samsung Heavy Industries and Hyundai Samho Heavy Industries could look at collaborating with Indian shipyards.

GAIL is expected to issue a tender to shipping lines like the SCI by January end. In turn the shipping lines may or may not form a consortium and invite tenders from shipyards that can manufacture these ships. The shipping companies/consortium will buy these ships. (For example, Petronet has hired four LNG ships from a consortium of SCI and Japanese firms Mitsui OSK Lines, NYK Line and K Line. SCI holds a 26% stake in two ships, and a 29.08% stake each in two of these LNG shipping ventures.)

The charter agreement between GAIL and SCI is a contract between the client and the shipowner.