Thinking big for small units

Written by Pranav Nambiar | Updated: Sep 11 2013, 01:33am hrs
Grappling with idle pipeline capacity, GAIL India has embarked on a new strategy to ramp up LNG supplies to small-sized industrial units located along its 12,000-km pipeline network.

GAIL has no authority over gas allocated on a priority basis to power and fertiliser companies, as this is decided by the government. Therefore, we will channelise more energy in catering to smaller industrial units, which include a wide range of companies like ceramics, glass and auto units, said Prabhat Singh, director-(marketing), GAIL.

Singh said a there is a huge customer base of units which are not so price-sensitive and R-LNG is going to be a win-win fuel option for such units across the value chain. Many of these clients are struggling with power shortages or are attempting to move away from expensive fuels like naphtha. GAILs subsidiary at Singapore has been given an open mandate to source all spot LNG and even long-term volumes to cater to these consumer segments.

Rather than just continuing with its traditional focus on providing the ailing fertiliser and power companies with domestically produced gas, which is dwindling in volumes, GAIL will put more thrust on offering small industrial units with imported

R-LNG. The company has put on hold plans to lay new pipelines, and will instead create sub-lines that connect to small industrial clients.

This year GAIL has identified around 130 such connections, which can potentially add R7,000 crore-8,000 crore to GAILs top line. Another 100 are expected to be added by the next year. Connecting to them requires no massive investments either as many of these units are located within 50 km of GAILs vast network of pipelines. The company has recently created a new group called last mile connectivity to reach out to the small industries.

For reasons ranging from falling domestic production of gas (particularly RILs KG D6 gas) to the stalling of various power and SEZ projects, GAILs average pipeline utilisation levels stands today at just 50-55%. Across the country, GAILs pipeline capacity is about 230 million metric standard cubic metres per day (mmscmd).

GAIL has now restructured the marketing function to seek out and strike deals with the small units. The zonal head and the head of operations and management (O&M) will be jointly responsible for last mile connectivity, unlike earlier when the projects team at the central office held the responsibility.

In the lean period, when the construction activities on trunk (main) pipeline are usually dormant, the construction activities on the spur (sub) lines have been expedited to an intensive scale. Buddy Team in GAILwith zonal officials, projects and O&M groupsare being formalised to lay spur lines up to 50 km to reach the customers, he said.

R Goyal, director of projects at GAIL, said the companys main priority now is to build sub-lines from the main lines for last mile connectivity. As opposed to building new pipelines (trunk), we are looking to build sub-lines from our main lines so that we connect to the final consumers. For instance, in the case of the Dabhol to Bangalore pipeline, we will target clients in and around 50-60 km of the pipeline, he said.

He said that at present except for the Delhi-Ferozabad pipeline, which has about 200 small clients, the company does not significantly cater to this segment. Many of them are naphtha or fuel users looking to get gas, which is a cheaper source of fuel. Pipelines like Dabhol-Bangalore, Surat-Paradip, Bawana-Nangal, Chittorgarh-Bhilwara with hundreds of industries in the vicinity are the key to the success of this new marketing strategy.

In May, GAIL received an overwhelming response to its expression of interest (EOI) for supplying gas at $13.25-13.5/million metric British thermal units (mmBtu) from 2016-17, showing that there are plenty of takers for gas at rates higher than the prevailing prices for domestic gas. Around 100 companies from various sectors, including ceramics, refineries and steel, participated in the bidding.

The EOI offered around 25 mmscmd of gas for which the company got bids from potential buyers for around 140 mmscmd. Singh said the supplies would be made available through a mix of long-term LNG imports that the company has booked from countries like the US, Qatar, and Russia.

GAIL has so far locked in around 6-7 million tonnes per annum (mtpa) of long-term contracts for gas, which will land in India from 2017. This includes deals with Qatars RasGas, Russias Gazprom and the US-based Cheniere Energy Partners. The company also imports spot gas.

Asian importers like India, China, Japan and South Korea along with Latin American countries like Brazil pay the highest prices for

LNG at around $13-16/ mmBtu, according to the Federal Energy Regulatory Commission. India pays around $12-15/mmBtu landed price for spot cargoes. In contrast, domestic gas resources range from $4.2-to $5.7 per mmBtu.

At present companies get domestic gas from the NELP fields and KG D6 gas fields at a base price of $4.2 per mmBtu. ONGC C-series gas is sold at a base price of $5.25 per mmBtu, while gas from the Panna-Mukta-Tapti fields is priced higher at $5.6- 5.7 per mmBtu. From April 2014, a new gas price derived from the Rangarajan committee formula linked to global hub prices will become applicable.