GAIL to invest $7.8-bn for hiring fleet to import LNG from US

GAS utility PSU GAIL (India) has prepared a road map to pump in an estimated $7.57 billion for hiring a fleet of sophisticated LNG ships to ferry gas from the US to India for 20 years from 2017.

For this purpose, the PSU will soon float tenders to award contracts...

by November. The additional cost for fuel, canal and port call charges will be around $30 million and this will be borne again by GAIL.

The public sector gas major has tied up 5.8 million tonnes per annum (mtpa) of LNG imports from the US starting 2017.

The Maharatna PSU is mulling for a 10 percent equity stake in the ships with a seat at the owners’ table to facilitate the company to have an insight into on-board happenings.

There is also a plan to partner Shipping Corporation of India (SCI) in the venture with the option of the state-run entity taking up stakes (up to 26 percent) in the ships.

The ministry of petroleum and natural gas, said a media report quoting official sources, had suggested to GAIL to consider awarding one-third of the contracts to Indian ship makers. However since the Indian shipyards don’t have any track record of building large ships, it did not happen.

As per the contract, there must be a guarantee for performance of LNG ships for a 20-year period.

Currently, about 379 LNG ships are operating globally and another 105 ships are being built/ordered. The specialised carriers are built mostly in South Korea and Japan by companies such as Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering, Hyundai Heavy Industries, Mitsubishi Heavy Industry, STX and Hanjin Shipyard. In recent years, China has also started making LNG ships.

GAIL appointed Lloyd's Register to carry out assessments if Indian shipyards have the requisite wherewithal of building LNG carrier. The consultant, however, said both L&T and Pipavav would need to create new infrastructure to build these vessels.

The Indian firms would require six to seven years to deliver the first LNG ship, which does not meet GAIL's requirement. Generally, it takes 30 months for Japanese and Korean companies to deliver an LNG ship.

Building an LNG ship in an Indian shipyard would involve technical risks in terms of design and integration of the ship system. Moreover, Indian-built ships may be rejected by US terminals, according to consulting firm Integration. In December 2011, GAIL signed a deal with Cheniere Energy Partners to buy 3.5 mtpa of LNG from the Sabine Pass Terminal in Louisiana on FoB basis. Deliveries would start between March and August 2018. Later in April 2013, the PSU booked another 2.3 mtpa capacity to export LNG from the Dominion Cover Point terminal in Maryland, delivery of which is expected from September 2017.