the Rangarajan-based price, estimated at roughly $7 based on the rates of reference prices currently, would still be lower than LNG prices.
Singh added that GAIL is quite keen to sell the US LNG to Indian buyers as this is the cheapest available long-term LNG linked to the Henry Hub rates, which are hovering around $3.5/mmBtu. GAIL is the biggest offtake holder of US LNG export capacity, with 3.5 mtpa LNG contract from the Sabine Pass project in the US Gulf signed in December 2011 and 2.3 mtpa from Cove Point on the east coast signed in April 2013. GAIL has other more expensive long-term LNG contracts with the Gorgon project in Australia and Gazprom in Russia which are oil-indexed and at present levels would cost over 15/mmBtu.
Analysts say GAIL would find it difficult to find buyers from the power and fertiliser sectors as it would lead to a sharp increase in the cost of production for the companies and larger subsidy burden for the government. According to a Standing Committee on Finance report, the cost of urea production will increase by Rs 1,384 /mt with every increase of $1/mmBtu in gas prices, thus increasing the subsidy burden on the government. Also, every $1 hike in gas price would necessitate a Rs 0.5/ unit increase in electricity tariff, making it difficult to find buyers for the power generated.
GAIL plans to offer the US LNG to three sets of domestic users. First, power and fertiliser companies, which are the largest consumers of natural gas and are currently facing massive levels of under utilisation in capacity owing to gas shortages. Second, other industries like refineries, ceramics, glass, etc. Third, for GAIL's internal use for its petrochemicals and city gas distribution businesses. “The plan to sell about 1 mtpa to fertiliser and power units, around 2.5-3 mtpa to other industries and the remaining for internal consumption,” said Singh.
As far as other industries (apart from power and fertiliser) are concerned, GAIL believes that once one or two buyers pick up the long-term LNG, several others would follow suit as there is a huge and growing