GAIL dismisses idea of east coast LNG terminal

Vol 8, PW 4 (19 May 04) Midstream & Downstream

GAIL has lost interest in the 2.5m t/y Kakinada LNG import project, despite a decision by project promoters BP, Petronas and Indian Oil to re-locate the (proposed) terminal further south to Krishnapatnam.

We are no longer interested in Kakinada (or Krishnapatnam), says a GAIL source. The Kakinada promoters have lost the initiative.

They will face very tough competition from KG basin gas, whether from Reliance, GSPC or anybody else. GAIL tells us it has no plans to buy an equity stake in the venture.

This contrasts with its earlier relentless but unsuccessful efforts to force its way into the consortium with help from the oil ministry. Kakinada ought to have been operational by now, adds GAIL.

Weve been hearing about Kakinada for so long but nothing has happened. GAIL expects it will take nothing short of four to five years for the project to materialise, even if work begins now.

Theyve nothing visible on the ground. For GAIL, Kakinada (or Krishnapatnam) lost its attraction after Reliance announced it had discovered a 13-tcf gasfield at KG-DWN-98/3.

Therell be too much gas in Andhra Pradesh, he adds. The state will become a net exporter once Reliance lands its gas (around mid-2006).

GAIL feels any LNG import terminal on Indias eastern coast has a dim chance of success, given plentiful supplies of natural gas from Reliance and GSPC. Another important reason for GAILs disinterest in Krishnapatnam is that, domestic gas will have a significant price advantage over any imported gas due to lower labour and other input costs in India.

GAILs argument is not lost on the Krishnapatnam promoters. Pricing will be the main issue to the success of the project, admits a source.

We have got some comfort on this from BP and Petronas. As of now, theres no plan to appoint BP and Petronas as LNG suppliers to the project.

Instead, the Krishnapatnam promoters plan to select their LNG supplier through a global tender. There will be some arrangements (with BP and Petronas), he adds.

But therell be no discrimination against other bidders.