GAIL hesitates over LNG facility in Rajasthan desert

Vol 12, PW 24 (07 May 09) Midstream & Downstream

GAIL is hesitating over an ambitious but expensive plan to build an onland gas liquefaction facility at Jaisalmer in the desert state of Rajasthan - despite receiving global bids from eight companies to carry out a pre-feasibility study.

PETROWATCH learns that by the extended deadline of March 31, GAIL had received bids from CRISIL, Ernst & Young, Mecon, Projects and Development India, Technip, Feedback Ventures, Moak Engineers and Marcados. But a source reveals that during a first round of discussions in the last week of April bidders raised concerns about some of the terms in the proposed contract.

“GAIL might relax conditions because of these concerns,â€‌ we are told, “because it wants to go ahead with the project.â€‌ But contacted by this report, GAIL downplays the whole exercise.

“This is just a pre-feasibility study to understand the market,â€‌ we hear. “Don’t read so much into it.

We are still at a very premature stage.â€‌ An industry source justifies GAIL’s caution.

“GAIL has most likely encountered price resistance from potential buyers of onland LNG and wants to shelve the project or find a safe exit.â€‌ Blame this on sharp drops in global LNG and gas prices from last year coupled with high capital costs to construct the facility.

“Three to four years ago installing an onland gas liquefaction facility was not expensive,â€‌ we are told. “Investors rushed to fill the order books of equipment manufacturers.

â€‌ In an onland gas liquefaction facility the â€کcold’ box is the most critical piece of equipment, accounting for 40% of the price. “There are three or four companies in the world that make this equipment for a 150 t/d plant,â€‌ we hear.

“Gas prices have tumbled but these manufacturers still have an order backlog.â€‌