GAIL petrochem operations and revenues to be hit as Petronet decides to stop gas deliveries

21-Mar-08

State-run gas utility GAIL (India) Ltd could see a potential deficit in its Rs 2,200 crore annual revenue as well as a cessation in operations at a key petrochemical complex. This could happen because of a decision by supplier Petronet LNG Ltd to stop gas deliveries and divert them to ONGC. 5 mln tpa of liquefied natural gas (LNG) will be diverted to ONGC's proposed petrochemical complex at Dahej, Gujarat. GAIL's Pata petrochemical complex in Uttar Pradesh, built with an investment of Rs 3,350 crore, requires around 8mtpa of gas. Failure to tie up an alternative source would imply that GAIL runs the risk of letting its capacity remain idle. The stakes are high for both GAIL and ONGC as no supplier is willing to offer international long-term supply contracts and users have to tap into the spot markets where prices average US$15-18, per million British thermal units (mBtu), compared with US$4-5 per mBtu offered on existing long-term contracts. Petronet LNG is India's largest LNG-receiving and regasification firm and its terminal has a capacity of 6.5 mln tpa. GAIL, ONGC, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd each hold a 12.5% stake in Petronet LNG. The competition among the two public sector firms reflects the growing struggle for scarce resources of natural gas. The reason behind this switch in supplies could be that GAIL has derived the maximum benefit from this terminal. It is high time that ONGC gets some returns in lieu of its equity stake. India has only two LNG regasification terminals and both are in Gujarat. One is owned by Petronet LNG and the other by Shell India Pvt. Ltd (capacity of 2.5 mln tpa). Other terminals planned include one attached to the Dabhol project (5mln tpa), and one each in Kochi (5 mln tpa) and Mangalore (5 mln tpa).