Others are not so confident that GAIL can get LNG

Vol 9, PW 15 (03 Nov 05) Midstream & Downstream

Global LNG suppliers contacted by this report dismiss GAILs confidence that it can secure LNG for Dabhol.

India is getting a reputation as a country that you cant sell LNG into, one tells us. I personally know of two spot LNG deals which GAIL turned down because it was supposedly too expensive.

Says another: GAIL will approach a supplier in, for example, Malaysia, and say, Hey, I want LNG at this price. Supply me at this price.

I cant afford more, it doesnt work that way. In todays market buyers are courting suppliers.

Any supplier will politely tell GAIL that the request is being considered and then sell to existing customers in Korea and Japan who are lining up and ready to pay the market price. Others censure GAIL for pegging its price expectations too low and at huge variance with prevailing market rates.

When the market price is $11 per mmbtu, GAIL asks a supplier for $4 per mmbtu, we hear. When the market price is $13 they ask for $7.

What will they ask when the price goes to $15 If it carries on like this GAIL wont be able to get any gas for Dabhol or anywhere else. Confused, LNG suppliers question the logic behind GAIL and Petronet-LNGs reluctance to pay global market rates for LNG when alternative liquid fuels like naphtha cost considerably more.

Perhaps theyre scared of setting a precedent if they agree to a high price we hear. Certainly the economics dont support this strategy.

There must be something else. Something else Could the answer be in a conversation between one major state-owned buyer and the representative of an international LNG supplier, recounted to this report.

Asked to explain the logic of burning expensive naphtha instead of cheaper gas, the PSU chairman replied. If I buy liquid fuel from another state-owned company, no one asks any questions; but the moment I buy gas from you, Ill have the CVC (Indias anti corruption Central Vigilance Commission) opening a file and asking me questions.