Gail India Eyeing Gorgon Stake
Gail India has been mulling to pick up an equity interest in the Gorgon project in Western Australia, reports suggested on Tuesday.
The state-run gas operator is understood to be pursuing Chevron and Algeria’s Sonatrach to acquire stakes in liquefied natural gas plants in Australia and Algeria.
While it cited an unnamed company executive, the company declined any comment on the report.
Gail's move is believed to have been prompted by plummeting gas production in India along with a spurt in demand for environmentally friendly LNG in the country.
Gas production in India has been on a decline since the past nine months, with output down by 5.3% year-on-year to 4.1 billion cubic metres in August. The fall has largely been attributed to a steep decline in output from Reliance Industries' KG-D6 gas block, which the latter blamed on regulatory delays.
Chevron owns a 47% interest in the great Gorgon gas fields at Barrow Island on the northwestern coast of Western Australia, with Exxon Mobil (25%), Shell (25%), Osaka Gas (1.25%),Tokyo Gas (1%) and Chubu Electric Power (0.417%)l the other stakeholders. The fields are estimated to contain about 40 trillion cubic feet of gas.
Gail which already has a 1.44 million metric tonne per annum supply contract with Gorgon, plans to import this gas through Petronet LNG when Gorgon begins shipment in 2014.
It had initiated talks for a long term deal for sourcing up to 3 million tonnes of LNG from Sonatrach in 2006 which was followed by about 136,000 cubic metres of gas import from Algeria in the same year, marking the first Indian purchase from the world spot market.
Gail had then paid $9.28 per million British thermal unit to the Algerian firm, making it the costliest gas import at that time.
Discussions between Gail and Sonatrach are at an advanced stage for supply of 1.2 million metric tonne per annum of LNG for the Dabhol Power Project for which Gail had been planning to source 5 million metric tonne per annum of LNG since 2009.
Analysts said Gail is seeking to secure its LNG supply through foreign stakeholdings rather than increase profits. "With production at Reliance's KG-D6 fields declining, Gail can neither afford to underutilize its existing pipeline infrastructure, which is extensive, nor shelve its capex plans.
Hence, it'll be seeking a minority stake", said Alok Despande, energy analyst with Mumbai-based Elara Securities.
"Both Gail and Petronet LNG have said that they are looking to source 'equity oil' to secure India's energy needs, especially when Japan is slated to suck in most of the global LNG supply",senior research analyst with Angel Broking Deepak Pareek said