GAIL in frantic rush to close LNG swap deals

Vol 19, PW 24 (11 Aug 16) Midstream & Downstream

When GAIL first signed a Henry Hub-linked deal in December 2011 to take 3.5m t/y from the Sabine Pass liquefaction facility in the US it felt like a dream come true.

How things have changed in five years! GAIL is today frantically racing against time to swap 2m t/y of its US imports to save transportation costs. Not only is the 20-year deal looking prohibitively expensive as LNG prices continue to tumble but GAIL has also failed to find tankers to ship the LNG to India - this is a Freight on Board (FOB) deal with GAIL responsible for transporting the LNG.

Happily on July 20, 2016, GAIL received bids in a tender to swap at least eight of 12 cargoes with companies who have contracted supplies from Qatar and Abu Dhabi for delivery to South American and European destinations. "We will give our US cargoes to these companies and bring their Middle East cargoes to India," confirms a GAIL source.

Crucially, GAIL will only sign Delivered ex-Ship (DES) deals for the swap contracts - this means it won't be responsible for arranging transport. Still unclear is whether GAIL will do the swap deal for the entire duration of the 20-year contract.

What is clear is it must find a solution soon because the SPA kicks in when the third Sabine Pass train begins production, slated for October 2017.