Work begins on Dabhol to Bangalore pipeline

Vol 14, PW 6 (09 Sep 10) Midstream & Downstream

Work has begun on GAIL’s proposed 1389-km gas pipeline from the Dabhol LNG terminal in Maharashtra to Bangalore, despite the absence of firm contracts for long-term LNG supplies.

When completed, this pipeline is designed to evacuate up to 16m cm/d of R-LNG from Dabhol and its capacity could later be doubled by adding compressors.“But as of now we have no gas supply tie-ups in place for the pipeline,” a concerned GAIL source confirms.

GAIL, he adds, has no real contracts for R-LNG sales from Dabhol even though it has signed Heads of Agreement (HoAs) with several potential customers. “Signing HoAs is meaningless,” he says, “unless these are converted to contracts.

” These customers are unwilling to commit to firm contracts, we learn, deterred by the currently prevailing “high” long-term LNG prices. “Long-term LNG prices are not softening,” says GAIL, “but customers wonder how long this can last as the US is still in the grip of a recession and shale gas is keeping LNG prices there low.

So customers prefer to wait and watch and delay projects instead of locking themselves in to a 25-year (R-LNG purchase) contract.” At present crude oil prices, says GAIL, R-LNG delivered to customers could cost as much as $16/mmbtu.

GAIL is also concerned that if it goes ahead and signs long-term LNG contracts at these high prices, it could be in trouble later if its gas customers break their purchase contracts when global LNG prices soften. Still, GAIL has gone ahead and submitted Expressions of Interest to Karnataka government owned Power Company of Karnataka (PCKL) to set up four gas-fuelled power stations with a total generating capacity of 900-MW needing 5m cm/d of gas.

These four stations will all lie along the Dabhol to Bangalore pipeline route. “October 15 is the new deadline set by PCKL for the submission of completed Request for Proposal documents,” says GAIL.