GAIL backs out of spot R-LNG trading on NCDEX

Vol 15, PW 1 (14 Jul 11) People & Policy
     

GAIL is backing out of its earlier commitment to begin spot R-LNG trading on the Mumbai-based National Commodity and Derivatives Exchange (NCDEX).

Expectedly, the oil ministry is now asking what exactly GAIL is trying to hide. GAIL was expected to begin spot trading R-LNG in May on the NCDEX Spot online trading platform under a one-year pilot project proposed by the oil ministry, which wants to see greater transparency in R-LNG pricing in India.

“But GAIL keeps unnecessarily delaying the project,” says an angry ministry official. “Every month it tells us it will start spot trading on NCDEX by the end of the month.

But at the end of the month it comes up with some lame excuse to justify its delay.” When contacted, a senior GAIL source confirms his company’s reluctance to begin trading spot R-LNG on NCDEX.

“Sure, we’ve had consultation meetings with NCDEX,” he admits. “But that doesn’t mean we have to go ahead with the project.

” GAIL, he explains, is worried about being locked in to NCDEX contracts with customers if spot LNG prices suddenly fluctuate. If, for instance, a customer books a spot LNG cargo at $14/mmbtu and spot LNG prices suddenly rise to $15/mmbtu, GAIL will make a loss, or be forced to cancel the deal.

Similarly, if the spot LNG price suddenly crashes and falls to around $10/mmbtu, customers who booked a cargo at $14/mmbtu might back out. But our ministry source reminds us none of this has anything to do with trading through NCDEX! “This is just a delaying tactic,” he thunders.

“What does GAIL do right now when the spot LNG price rises or falls It holds up delivery of the spot LNG cargo. It can do the same thing on NCDEX.

” Echoing a widespread industry concern, he claims GAIL has a ‘vested interest’ in avoiding greater transparency in spot R-LNG trading.

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