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Prabhat Singh, Director (Marketing), GAIL

23 Dec 2013

GAIL (India) Limited’s fortunes are on the upswing. The company is eying several merger and acquisition opportunities across the globe to bring gas to Indian shores. Efforts are also being made to increase the capacity of its existing LNG terminals to meet demand. Talking to Neeraj Dhankher, GAIL (India) Limited’s Director (Marketing), Prabhat Singh, dwells on some of the issues facing the company and how it is coping with the impact of rupee depreciation on its gas contracts. Excerpts.

India has agreed to supply 5 mmtpa of LNG to Pakistan through a pipeline to be constructed by GAIL. Do you see the proposal as fructifying considering that political relations between the two countries are quite sensitive?
We are quite upbeat on the proposal and are strongly optimistic that it would happen. However, some issues are being resolved at the inter-government level. I can say that we are very close to finalizing the proposal. Final price negotiation is under way. Going ahead on the proposed pipeline is being described by many as accident prone diplomacy as friendly border relations are a must. So those issues have to be resolved. We are looking to supply gas from our Dabhol terminal as this much of capacity won’t be available at Dahej.
Many experts see the proposal to supply gas to Pakistan through a dedicated pipeline as a test case for success of the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. How do you view it?
That is what we want as well. In case of TAPI, Pakistan will hold the key, while in case of this pipeline we hold the key. Though it is initially for five years, why would anyone not want to use it after that?
How has rupee devaluation impacted your gas contracts? Are you experiencing any downturn or reduction in gas demand from users?
The impact of rupee depreciation is minimal at the moment. One advantage is that most of our gas contracts are on a long-term basis and we have to live with each other in good as well as bad times. When gas is cheaper, customers are happy about it. As of now, whatever demand we have is tied up on ‘take or pay’ basis. So it is not an issue. There is, however, some impact on spot cargoes. In case of spot LNG, people are looking for options for cheaper gas. But then when you look at price of alternative fuels, spot LNG is proving to be still cheaper.
Keeping the current rupee slide in mind, are you looking at reducing your LNG cargo intake?
No. We are going ahead with our plans and there is no reduction in our cargoes. We are optimistic that whatever cargoes we have planned, we will be able to go ahead on it. We planned around 37 cargoes and till now around 10 cargoes have been delivered, but in September-October, another five cargoes (mid-term contracts) are expected to be delivered.
What is your outlook on future spot market gas pricing?
Price wise, spot market today is looking at alternate options. For instance, in Gujarat lot of people have suddenly shifted to pet gas and GSPC is facing some issues there. Anybody who is shifting to those kinds of volumes is fine, but otherwise demand on liquid fuel is still running fine. As far as spot prices for Asia are concerned, they are expected to remain between $14 and $16 per mmbtu in the near future.
What is the update on the 5 mmtpa Dabhol LNG terminal? Now that monsoons are over, are you looking to tie up additional cargoes? What is the status of the construction of the breakwater facility?
We are in the process of typing up cargoes post monsoon and our Singapore office is looking at various options. Construction of the breakwater facility is expected to be completed in another two years’ time at a cost of around Rs 700 crore. All legal issues have been resolved. In the absence of breakwater facility, the terminal cannot operate for four months in a year and will operate at one-third capacity. With regard to the power plant, it has stopped operations as there is no domestic gas. We have taken up the matter to the Central Electricity Regulatory Commission (CERC). Certain issues with Maharashtra State Electricity Board (MSEB) are yet to be solved.
What is the status of work on pipeline connectivity for Petronet LNG’s Kochi terminal?
Work on the Kochi-Koottanad-Bangalore-Mangalore gas pipeline is at a standstill due to land acquisition issues in Tamil Nadu. We are fighting it out in the court. It has to happen, sooner or later. But nearby connectivity to the Kochi terminal has been provided and gas supplies have begun to customers like BPCL and Fertilizer and Chemicals Travancore (FACT).