GAIL finally agrees supply terms for PMT gas

Vol 9, PW 25 (06 Apr 06) Midstream & Downstream

GAIL and the consortium of Reliance, ONGC and British Gas have finally agreed on terms beyond 31st March 2006 for gas supplied from the Panna, Mukta and Tapti oil and gasfields offshore Mumbai.

On 29th March, both sides signed a gas supply term sheet. This must be converted into a contract within 45 days, failing which the PMT consortium can cancel the deal.

At the term sheet signing ceremony in Delhi, executive director marketing R Suresh signed on behalf of GAIL while representatives of Reliance, ONGC and British Gas signed on behalf of the PMT consortium. According to the term sheet, the PMT consortium will supply 5m-cm/d to GAIL at Hazira for two years to 31st March 2008 at $4.75 per mmbtu inclusive of royalty but excluding taxes and transportation.

Important to note is that GAIL has agreed to a 90% take-or-pay condition in the contract. GAIL was not satisfied with just 5m cm/d and wanted more.

In the agreement the PMT consortium agrees that any uncommitted gas available beyond 5m cm/d will be sold to GAIL at $4.75 per mmbtu on a best endeavour basis. Currently the PMT consortium produces slightly less than 10m cm/d.

After supplying 4.8m cm/d to the consortiums non-GAIL customers, there will be a little more than 5m cm/d gas left over. GAIL will get 5m-cm/d on a firm basis and receive anything left over on a best endeavour basis.

Also clear is that GAIL will get gas only from existing facilities at PMT. If we add on new facilities as part of our development plan, GAIL will have no claim on gas produced from there.

After two years, everything will be open: the price, quantity for all the gas from PMT as the non-GAIL contracts also expire on 31st March 2008. The PMT consortium is very happy at having managed to get GAIL to sign the term sheet.

In the previous supply arrangement mandated by the oil ministry for a year till 31st March 2006, not only did we not have a contract, GAIL was not even willing to sign a term sheet.