GAIL eyeing LNG at competitive rates to keep prices affordable for customers

GAIL’s marketing head said the seller's history in terms of gas delivery is an important factor while signing for LNG deals.

State-run GAIL (India) is seeking competitive pricing for liquefied natural gas (LNG) as consumers in India are highly price sensitive, Sanjay Kumar, Director (Marketing) told Moneycontrol.

Kumar added that affordable gas pricing is the only way to ensure that consumers in India do not switch to other fuels. In the last month, India’s largest gas distributor has finalised two long-term LNG import deals, one with UAE’s ADNOC Gas and another with global commodity trader Vitol.

“GAIL is always searching for good price levels. Affordability is the most important thing for the Indian market. The masses would not use gas if CNG and household PNG are not affordable. If the industrial customers find gas costlier than LPG or fuel oil they will switch to those fuels,” said Kumar.

He, however, did not disclose if the prices at which the recent deals were inked were lower than the earlier deals, citing confidentiality.

The Indian government plans to increase the share of natural gas in the country’s energy basket to 15 percent from 6 percent now, and the recent deals signed by GAIL and Petronet LNG are expected to boost gas consumption. On February 6, Petronet LNG, too, extended its LNG deal with Qatar by another 20 years, until 2048.

Other than competitive prices, GAIL’s marketing head said the seller's history in terms of gas delivery is an important factor while signing for LNG deals. “They (seller) should not have defaulted on a contract elsewhere. If the seller defaults, it becomes a problem for us because we are tied to the downstream market in the country,” he said.

In a big blow to GAIL, LNG supplies from Russia’s Gazprom were suspended in 2022 due to the war between Russia and Ukraine. As a result, GAIL had to cut supplies to its customers and was forced to buy expensive LNG from the short-term market. Though supplies resumed in March 2023, GAIL has initiated arbitration against Gazprom in London.

Kumar said as India is majorly dependent on imports for its gas requirements, the country could not be immune to such events. Boosting domestic production would be India’s only solution to handle such situations, he added.

“We may not be immune to the fallouts of extreme geopolitical developments. It's not that this has happened only in gas. There have been periods when crude oil has gone to $147 and Indian companies have managed that situation. GAIL is very hands-on in the gas business. GAIL is aware of the international gas business … we will successfully be able to handle that type of situation,” said Kumar.

Around 50 percent of India’s natural gas requirements are met through imports.

Guidance on gas prices

Kumar said gas prices are relatively stable and he looks forward to their being in the range of $8-10 per mmBtu (million metric British thermal unit) in the next 10 months.

“Prices were volatile earlier but it looks like we are in a steady state now. One major development in the energy market is that Europe has substituted their Russian gas with renewables or other forms of energy. So, I don't foresee that kind of crisis again. My outlook is that we should look at gas prices of $8 to $10 for the next 9-10 months,” he said.

Warmer-than-expected winters in Europe and healthy inventories have helped keep volatility in check for natural gas prices. Gas prices had skyrocketed in 2022 when Russia had halted supplies to Europe amidst the war.