By Nidhi Verma
NEW DELHI, Feb 24 (Reuters) - India's top gas utility GAIL
(India) Ltd GAIL.NS sees the falling spot price of liquefied
natural gas (LNG) as the biggest risk to its business, its
chairman Manoj Jain said on Monday.
Spot prices of LNG LNG-AS in Asia hit a record low around
$3 per million British thermal units (mmBtu) this month, making
supplies of gas under previously agreed long-term deals
unattractive for some price sensitive customers in India.
GAIL over-committed to new LNG volumes through long-term
deals with the U.S. and Russia earlier this decade when supply
was scarce and buyers rushed to secure deals. Spot prices at
that time were in the double-digits.
"The biggest risk is about the present prices of gas...The
gap between spot and long-term is widening and that is a cause
of concern for us," Jain said as he addressed the media for the
first time since becoming chairman last week.
He said GAIL had resold most of its LNG purchases under the
long-term deals but up to 30% was still an open position.
"The prices are down in the spot (market) and if it takes a
longer period to reach to a viable level then there would be
significant risk".
GAIL has deals to buy 5.8 million tonnes per annum (mtpa) of
LNG from the U.S. and up to 2.5 mtpa of LNG annually on a
delivered basis from Russia's Gazprom.
The landed price of LNG under the deal with Gazprom is
currently around $7.5/mBtu.
GAIL renegotiated its contract with Gazprom in 2018, and the
Indian oil minister at end-2017 told lawmakers that the company
was looking at renegotiating contracts with U.S. companies.
"We are looking at it and at an appropriate time we will
make a commercial call," Jain said, when asked if his company
would renegotiate deals with the U.S. and Gazprom.
"There is a need to realign the long-term contracts looking
at the current situation".
Prime minister Narendra Modi wants to increase the share of
gas in India's energy mix to 15% by 2030 from about 6.2% now.
However, inadequate infrastructure, including pipeline and gas
import facilities, have curbed gas demand.
GAIL expects India's annual gas demand growth to double to
6%-8% in 3-4 years by which time new gas pipelines will be laid
to connect industries and households, Jain said, adding cheaper
spot LNG has already attracted some power plants to the cleaner
fuel.
GAIL and its joint ventures will invest 1.05 trillion rupees
($14.61 billion)over five years, with about half of that spent
on laying around 7,000 kilometers of new pipelines, Jain said.
It expects its 5 mtpa Ratnagiri LNG terminal to operate at
full capacity in 2022 when a breakwater is built. The terminal
currently operates at 2 mtpa capacity.
($1 = 71.8700 Indian rupees)