Securing supply behind GAILs shale gas push

Written by Siddhartha P Saikia | New Delhi | Updated: May 12 2014, 07:04am hrs
GAILGAIL has already made an entry into the shale gas segment.
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 their existing acreages.

Globally, estimates peg shale resources of about 32,500 trillion cubic feet (tcf). And the US is the taking the lead in tapping the unconventional resource with nearly 17% of its domestic gas production coming from shale acreages.

Indias petroleum ministry does not have any exact estimate of shale reserves in the country. Different reports peg reserves in India at 300 tcf to 2,100 tcf.

Last year, GAIL signed a terminal service agreement with Dominion for booking 2.3 million tonnes per annum (mtpa) liquefaction capacity in the Cove Point LNG liquefaction terminal project located at Lusby in Maryland for 20 years. Dominion would be setting up the liquefaction facility in the premises of its existing 11.7 mtpa regasification terminal. The likely investment by Dominion in the project is $3.4-3.8 billion. The likely period of commissioning of the project is September 2017.