GAIL (India), which has tied up LNG contracts from the US and Russia, is looking to expand its footprint into the global gas trading market. The idea is that even if the Indian market for the fuel fails to live up to expectations, there would be an assured market overseas.

?We have allocated 1 million tonne for Singapore to test out the international market. We hope sizeable LNG would be absorbed in India. We have about six million tonne of LNG off-take right now. There is full flexibility for us on whether to bring it to India or sell it in the international market,? said GAIL chairman and managing director BC Tripathi.

He told FE that the company’s offices in Houston and Singapore are trying to seal the deal . ?We will see where we can have maximum margins on the commodity. The details would be decided in another six-eight months,? he added.

Though GAIL?s priority is to market gas in India, the capability of domestic consumers to afford expensive LNG is the question.

?For India to absorb all LNG, reforms should happen in the power and fertiliser sector so that they can afford imported gas,? Tripathi said.

In 2013, about 240 million tonne of LNG was traded globally. Of this, about 60% was through long-term contracts and the remaining through short-term contracts. At the end of 2013, there were 17 countries exporting LNG and 29 countries importing LNG. About 75% of the LNG demand originated in Asia. It is difficult to give a price to the volume as it varies widely for these contracts. There are some contracts that are fixed based on local pricing hubs, while some are linked to crude prices

?GAIL has an experience of contracting LNG in large quantities. Further, it has contracted from various terminals at different price points (some linked to crude, some to Henry Hub). The company also has robust financials. Thus, given the fact that global LNG demand would be increasingly from Asian countries, there is scope for GAIL to leverage its capabilities and foray into global LNG trading market. GAIL could also consider taking stakes in liquefaction terminals which could support it in LNG trade. However, the company will need to build new capabilities to be effective in this new area,? said Arvind Mahajan, partner and head (infrastructure and government services), KPMG in India.

Major natural gas producers have their trading division and similarly, major consumers have also floated trading divisions. Some major LNG traders are BP Global LNG, Trafigura, Centrica LNG Company, GDF Suez, Shell Western LNG, Sonatrach Gas Marketing UK, Hiroshima Gas Company, LNG Japan Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Company and Nippon Gas Company, among others.

The global LNG market hovers around $150 billion, lured by volumes that jumped 38% in the past five years, said Bloomberg. Citigroup and Bank of America are the biggest banks involved in transacting LNG deals.

Global LNG production capacity will increase by 130

billion cubic metres by 2018

as 12 new liquefaction plants open, according to the International Energy Agency.

GAIL is taking steps to foray into the internal gas trading market when shale gas supplies from the US are likely to flow into the market.

In the past 10 years, shale gas has contributed nearly 30% of the US total gas supply, which makes it a potential exporter in the future.

Moreover, new gas reserves being developed in Africa, notably Mozambique with more than 110 tcf of gas reserves, are likely to play an important role in the LNG market.

According to market watchers, the close proximity of

Asia and East Africa would facilitate most of African LNG flowing into the Asian countries such as Singapore, India, China, Indonesia and Malaysia, among others.

Asia is poised to become the second largest gas market

with consumption touching nearly 790 billion cubic metres by 2015, says the International Energy Agency.

Last year, GAIL signed a terminal service agreement with Dominion for booking 2.3 mmtpa liquefaction capacity in the Cove Point LNG liquefaction terminal project located at Lusby in the state of Maryland for 20 years.

Dominion would set up liquefaction facilities in the premises of its existing 11.7 mmtpa regasification terminal. The likely investment by Dominion in the project is $ 3.4-3.8 billion. GAIL holds liquefaction capacity in the Cove Point LNG terminal. The likely period of commissioning of the project is September 2017.