India’s largest gas marketer GAIL is in talks with a clutch of US hydrocarbon majors including Texas-based Freeport LNG as part of its effort to double shale gas imports from the country.
Although seven companies are vying for gas export licence to Asia, Freeport is likely to be the first to get it and enter into a contract with the PSU, sources privy to the matter said. GAIL has also opened talks with some Canadian national oil companies for shale gas, sources added.
Under a deal signed with Cheniere Energy? the only American company licensed to export gas to India ? in December 2011, GAIL will purchase 3.5 million tonnes of gas worth $12 billion across 20 years.
Sourcing gas from the US and Canada, where fine-grained sedimentary shale rocks are found in abundance, is central to India?s energy security plan. Shale gas will be imported as LNG in specialised vessels. While Gail is eyeing long-term contracts and stakes in US oil and gas companies, Reliance Industries, India?s largest private company, too is interested. RIL acquired 40% in the leasehold of Atlas Energy, a key Marcellus Shale gas producer in the US, in April 2010. In September 2011, GAIL acquired 20% in US-based Carrizo?s Eagle Ford Shale acreage for $300 million.
Freeport LNG, located in Brazoria County of Texas owns and operates a liquefied natural gas receiving and re-gasification terminal located on Quintana Island with a liquification capacity of 1.9 billion cubic feet per day.
Sources said Canada will be able to ship gas to India in a couple of years as construction of gas terminals like the one at the port of Kitimat in British Columbia are completed.
Gas from the US will be cheaper as the deal is linked to the Henry Hub price as compared with Japan customs-cleared crude price (JCC), an official said. The price of spot LNG is currently around $15-16/unit.
The Henry Hub price is the US benchmark price at which gas futures contracts are traded on the New York Mercantile Exchange. JCC, on the other hand, indicates a higher price at which long-term supply deals are usually struck in Asian economies like Japan, South Korea and Taiwan.
Indian policymakers feel buying North American gas will cool Asian prices and help set a regional benchmark fair to local gas producers and price-sensitive consuming industries like fertilisers, power, cement and petrochemicals. Indian gas producers like ONGC, Oil India and RIL are subjected to a regulated price of $4.2 per mmBtu.
The steady decline in domestic gas output has forced Indian oil firms to look abroad. At present, the gap between the demand and supply of natural gas is being partly met by import of liquefied natural gas.
Current actual domestic production stands at 135 mmscmd while demand is around 243 mmscmd. According to industry estimates, even if domestic production from Reliance KG D6 output goes up, demand of natural gas will be around 530mmscmd by 2019-20 and the output will be to the tune of 215 mmscmd.