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Gas imports not to turn cheaper in medium term, show GAIL’s new deals

Apr 07 2014, 00:48 IST
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Come 2017, GAIL would start getting 4.8 million tonnes of LNG from the US. Reuters Come 2017, GAIL would start getting 4.8 million tonnes of LNG from the US. Reuters
SummaryCome 2017, GAIL would start getting 4.8 million tonnes of LNG from the US.

Amid the imbroglio over whether, when and how India’s domestic gas price would be revised and with state-run and private investors increasingly anxious over prices turning ever more unremunerative, medium-term prospects of imported gas prices bring little relief either.

While consumers pay an average of $12-16 per million metric British thermal units (mmBtu) for liquefied natural gas (LNG) imported into the country right now, the new long-term contracts sealed by public-sector GAIL (India) from the US and Russia would make gas available in India at not less than $12-13.50/mmBtu, starting 2017.

Analysts said the scenario calls for the new government at the Centre to accord high priority to resolve the row over the formula for gas pricing in order to spur investments in India’s deep-water and ultra-deep-water acreages, from which investors are shying away. The viability of the gas business in India hinges not only on market-determined price for gas but also on how free power and fertiliser units are in pricing their outputs, they added.

Currently, of the 100-105 million standard cubic metres (mmscmd) of gas consumed by India daily, 70-75% comes from domestic sources and the rest is imported LNG. With domestic output stagnating and demand projected to surge (the BP Energy Outlook report said India’s gas demand would be 183% higher than now by 2035), the country will inevitably rely more on gas imports.

If the the rising oil imports are added to that, the country’s energy sector and government finances looks increasingly vulnerable to external developments. (Till February 2013-14, India’s oil imports bill stood at $133 billion compared with $144 billion in the whole of 2012-13.) There are, of course, some positives like the Oil and Natural Gas Corporation’s plans to double output of both oil and gas by 2030 (including ONGC Videsh’s production from overseas ventures) and the prospect of cheaper Canadian crude from its Alberta

oil sands bounty reaching Indian shores in large quantities four years from now.

Come 2017, GAIL would start getting 4.8 million tonnes of LNG from the US. Another 2.5 million tonnes a year would start flowing from Russia by 2020. Currently, GAIL is sourcing gas from Gas Natural Fenosa and GDF Suez at prices hovering around $14/mmBtu.

The price of gas to be exported from the US would be linked to Henry Hub prices, which currently is at around $4-$4.50/mmBtu. The landed price of this gas is expected to be

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