State-owned GAIL India today said it has swapped 60 per cent of the 5.8 million tonnes per annum of liquefied natural gas (LNG) it has contracted from the US as it rejigs supply portfolio in line with domestic demand. GAIL Chairman and Managing Director B C Tripathi said the company sold a “major chunk” of the US LNG via time swaps, destination swaps and shipping optimisation. “In all 3.5 million tonnes of LNG has been swapped,” he told reporters after company’s shareholders meeting here.
Under the time-swap deals, the company will buy LNG from international companies this year and sell equivalent amount of Henry Hub-indexed volumes during 2018-19. Also, it has entered into deals to take deliveries of gas from a nearer location and in exchange given its US volumes to company closer to the origin to cut shipping costs.
Tripathi said some of the time-swapped volumes have started arriving in India but refused to give details of the companies GAIL has entered into deals with. “Innovative contracting structures such as time swap, destination swap and shipping optimisation have been executed as measures to market LNG volumes,” he told shareholders.
GAIL has a deal to buy 3.5 million tonnes a year of LNG for 20 years from Cheniere Energy of the US and has also booked capacity for another 2.3 million tonnes at Dominion Energy’s Cove Point liquefaction plant. The company expects US LNG supplies to begin from March/April next year, he said.
GAIL had contracted LNG from the US to meet the demand of growing Indian economy with power sector being considered as a major buyer. But electricity produced using imported LNG is not finding buyers due to cheaper alternatives including renewables, leading to stranding of significant capacity out of 25,000 MW of installed gas based power plants. To mitigate the risks, GAIL explored opportunities to market Henry Hub indexed LNG volumes in the international markets.
GAIL in its annual report for 2016-17 said it “has already concluded three time swap deals, where-in LNG volumes are purchased from international parties during financial year 2017-18 with an agreement to sell equivalent volumes of Henry Hub volumes during FY 2018-19”. It added: “In parallel, your company is also making efforts to optimise Henry Hub LNG through destination swap transactions that could significantly reduce cost of shipping (US) LNG to the Indian ports resulting in improved affordability for the Indian customers.”
Talking to reporters, Tripathi said GAIL is working on more swap deals for US LNG. GAIL had in May signed a first-ever time-swap deal to sell some of its US LNG.
Under the agreement, it will get 15 cargoes or about 0.8 million tonnes of LNG from an unnamed trader this year. In return, GAIL will sell 10 cargoes or about 0.6 million tonnes next year from Sabine Pass on the US Gulf coast. GAIL had separately signed a deal with Royal Dutch Shell to sell about 0.5 million tonnes of its US LNG.
The LNG that GAIL will receive this year between April and December under the time-swap deal will be at oil-linked prices. The sale of US gas next year will be at a premium to its pricing formula on a free-on-board (FOB) basis.
Tripathi said GAIL is trying to market LNG to anchor customers such as refineries, power plants and petrochemical units along planned and existing pipelines. It is also in talks to supply LNG to new fertiliser plans and expect firm agreements in 2017.