Deadlock between GAIL and Gujarat Petronet

Vol 7, PW 21 (14 Jan 04) Midstream & Downstream

GAIL and Gujarat Petronet are still in deadlock over the cost of transmitting Dahej LNG within Gujarat.

At stake is the final price for the 1m t/y LNG that Gujarat Petronet will buy from Petronet-LNG. A source tells PETROWATCH that GAIL wants Gujarat Petronet to pay $3.58 per mmbtu of regassified LNG.

This includes $3.23 for the regassified LNG plus 10 cents as the marketing margin plus 25 cents transportation costs within Gujarat. Theres no disagreement over the $3.23 per mmbtu cost of regassified LNG, but agreement still eludes GAIL and Gujarat Petronet over the marketing margin and transportation costs within Gujarat.

Gujarat Petronet argues that since it is receiving regassified LNG directly into its own pipeline at Petronet-LNGs downstream flange, it should pay nothing to GAIL for local transportation costs. For the 10 cents marketing margin we could agree to a midway figure because we recognise that GAIL is the principal re-seller and has to stay in business, says a Gujarat Petronet source.

In fact we do not see much problem about reaching agreement on the marketing margin. However, continues our source, we can not agree to the 25 cents Gujarat transportation costs.

It would be suicidal for us to pay GAIL this amount. How will we be competitive How will we recover our transportation costs from customers Thankfully, theres no disagreement between GAIL and Gujarat Petronet over the duration of the LNG supply contract.

We are open to a short or a long term contract, says a Gujarat source. It all depends upon Petronet-LNG and GAIL.

Under discussion is a 5-year or 20-year gas supply contract.

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