Why GAIL wants Gujarat LNG transportation costs

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

GAIL believes the 25 cents it wants for transporting regassified LNG within Gujarat is crucial to the viability of its newly laid pipeline from Dahej to Vijaipur.

Weve factored this quantity (1m t/y) into our pipeline costs, says a GAIL source. The cash flow structure for the pipeline assumes that 25% of the LNG that arrives at Dahej is transported to customers in Gujarat and the rest to customers outside the state.

GAIL is clear that our bottom line will be severely hit if it is not paid transportation costs for the 1m t/y regassified LNG bought by Gujarat Petronet. We cannot afford this, adds a source.

More, we are told that the 11% internal rate of return of the Dahej to Vijaipur pipeline, may come down to about 7% if GAIL does not get transportation costs for the 1m t/y LNG that Gujarat Petronet buys. GAIL wants to know who will compensate it for this loss.

The government has fixed the LNG transportation costs we can charge through the Dahej to Vijaipur pipeline, with a 5% annual escalation provided for, says GAIL We think the transportation costs should be higher, but we settled for this low figure so that LNG becomes affordable to customers. It is unfair to expect only us to take hits.

Luckily, both sides are still talking to each other. Says GAIL: Weve given Gujarat Petronet a couple of options to resolve the issue.

Central to GAILs position is that, both of us will have to part with something to reach a solution. Both of us will have to take a hit to our bottom line so that we can co-exist with each other.

The ultimate beneficiary in this battle between GAIL and Gujarat Petronet will be the customer because, the price to the customer will not be much different from either of us. GAIL insists it doesnt want to be the sole gas transporter within Gujarat and is keen to reach agreement with Gujarat Petronet.

We recognise that we must co-exist with regional players like Gujarat Petronet. GAIL believes it can sign a gas sales and transportation agreement with Gujarat Petronet by the end of this month.