GAIL to buy 1/3 of LNG ships from Indian builders

Written by Siddhartha P Saikia | New Delhi | Updated: Jul 28 2014, 05:38am hrs
GAILDomestic players such as L&T and Pipavav are among the obvious beneficiaries of the decision
GAIL (India), under a petroleum ministry directive, has decided to buy a third of the LNG ships it plans to acquire to ferry the fuel from the US to India, from Indian shipbuilders. Considering that the PSU, whose massive LNG imports from the US would start in 2017, has lined up investments to the tune of $7.6 billion for hiring the required specialised vessels, the move would give a big boost to the Indian shipbuilding industry.

Domestic players such as L&T and Pipavav are among the obvious beneficiaries of the decision, which is in line with the Modi government's thrust on the domestic manufacturing sector. Although some analysts are doubtful about the feasibility of Indian ship makers meeting such huge demand given their lack of experience in the areas guarantee for performance of LNG ships for a 20-year period will be part of the contracts the government, sources said, is of the view that the challenge would force Indian ship makers to shape up.

The ministry wrote to the GAIL (India) board which met here on July 7: (The) Board (may) take cognizance of the provisions contained in the National Manufacturing Policy and in the 12th Plan document of the Planning Commission regarding promotion of indigenous manufacturing in India. Petroleum minister Dharmendra Pradhan told FE, someday (large and sophisticated) shipbuilding has to start in India.

A senior GAIL official told FE that the company board has decided to go-ahead with ministry's direction and would soon float the tenders accordingly. The tender may specify the exact time lines for delivery of vessels, Indian shipyards need to be given more time, as they first need to upgrade the manufacturing facilities, the official added.

GAIL (India), as reported by FE earlier, had drawn up plans to hire a fleet of sophisticated LNG ships to ferry gas from the US to India for 20 years from 2017. The firm had tied up 5.8 million tonnes per annum (mtpa) of LNG imports from the US starting 2017.

The PSU wants to charter new build ships to transport gas from the US. Step-in right (to GAIL) in the ownership of LNG ships would only be possible for new build ships. Since fuel and other charges are to the charterer's account, GAIL is looking at chartering fuel-efficient ships.

GAIL is considering taking up equity stakes of up to 10% in the ships with a seat at the owners table to facilitate the company to have an insight into on-board happenings.

Currently, about 379 LNG ships are operating globally and another 105 ships are being built/ordered. The specialised carriers are built mostly in South Korea and Japan by companies such

as Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering, Hyundai Heavy Industries, Mitsubishi Heavy Industry, STX and Hanjin Shipyard. In recent years, China has also started making LNG ships.

GAIL appointed Lloyds Register to carry out assessments if Indian shipyards have the requisite capability of building LNG carrier. The consultant, however, said both L&T and Pipavav would need to create new infrastructure to build these vessels. These firms may require six to seven years to deliver the first LNG ship. Generally, it takes 30 months for Japanese and Korean companies to deliver an LNG ship.

Building an LNG ship in an Indian shipyard would involve technical risks in terms of design and integration of the ship system. Moreover, Indian-built ships may be rejected by US terminals, according to consulting firm Integration.