Indian GAIL floats plan for time and LNG cargo swap

India’s GAIL is hoping to use its future flexible supply portfolio based on US LNG as a means to meet its current demand requirements, and has opened talks with suppliers on a potential time swap arrangements, the state company’s managing director and chairman said this week.

“We are interested in some kind of time swap where we would start buying LNG now and from 2017 and 2018 onwards when we start to receive LNG from the US, we could start to give the LNG back,” BC Tripathi told ICIS on the sidelines of the CWC World LNG Summit in Paris on Tuesday.

The GAIL executive said that talks were at the initial stages, adding that the state-owned company would be prepared to enter into time swap agreements for anything up to 6m tonnes.

However, Tripathi said that there would be a number of challenges to overcome, most notably in managing the risks around the price gap between the current tight market and 2017, when more supply entering the system is expected to weigh on price levels.

“There are definitely issues in terms of the mismatch in pricing, and as of now what we are trying to piece together is complicated. I would not say it is impossible but I can’t say that I am confident,” he said.

GAIL is the biggest offtake holder of US LNG export capacity, with nearly 6mtpa of offtake – 3.5mtpa from Train 4 at the Sabine Pass project in the US Gulf and 2.3mtpa from Cove Point on the east coast, both expected online in 2017 – which it is expected to lift from six or seven of its own vessels. The Indian company was more optimistic that it would be able to use the flexibility provided by its US portfolio and shipping to arrange physical cargo swap arrangements to cut down the cost of the 20-day voyage from the US Gulf to India’s west coast.

“We are in talks and there are definitely proposals with suppliers in terms of physical swaps…its very possible and we are quite confident we will be able to arrange something,” Tripathi told journalists on the conference sidelines.

Such an arrangement could see GAIL enter into agreements with portfolio participants and other suppliers in the Middle East to send US LNG to northeast Asia instead of India, with GAIL receiving supply to India from Qatar and other sources closer to home. However, issues ranging from credit risk to gas specification would have to be overcome if physical swaps were moved from the margins to the mainstream.

India’s gas demand is forecast to rise from 54 billion cubic metres (bcm) in 2012 to 300bcm in 2030, according to government estimates. Given the scale of the challenge in meeting this demand, Tripathi told delegates that GAIL’s primary objective would be to supply the domestic market.

Nevertheless, the GAIL chairman said there would be circumstances when it would not be able to deliver all of its supply portfolio to India, and therefore it was keen to step up its international trading activities. To this end, GAIL has allocated 1mtpa from its future US portfolio to its Singapore subsidiary, which it will trade on the spot and short-term market from 2017-2018, Tripathi confirmed.