|LNG import to begin in 2017
In a bid to keep oil and gas sector out of any future diplomatic tussle, India has taken measures to ensure that state-run GAIL's move to import liquefied natural gas (LNG) from the US should be on carriers with substantial Indian ownership. A country like China that often enters into diplomatic standoffs with US insists that ships must be built in China if chartered on long-term to Chinese oil majors. Now, it seems GAIL has something to learn from our neighbour.
The Maharatna company is likely to import six million tonnes (mt) of LNG from the US annually, with an exposure of $2.5 billion calculated at Free on Board (FoB) price of $9 a million British thermal unit. The LNG supply will begin by September 2017. The imported gas will cater to the surging demand of domestic power and fertiliser companies.
Now, the government wants Indian shipyards to enter into collaboration with foreign shipyards to develop domestic ship building capacity in LNG space.
Last month, the petroleum secretary met the heads of all the major Indian shipyards to discuss about the plan. Representatives from Pipavav Shipyard, L&T Shipyard, Goa Shipyard, Mazgaon Docks, Cochin Shipyard and ABG Shipyard took part in the meeting. The CMDs of GAIL, Shipping Corporation of India and ONGC were also present during the discussion.
The government doesn’t want LNG import plans to be impacted by any such diplomatic tussle. If Indian shipyards are roped in into the scheme of things, GAIL would be able to float its tender for award of time charter contract based on that, which would be evaluated on a life cycle-cost basis.
GAIL has already signed a memorandum of understanding with SCI and agreed to provide SCI with step-in right to take up to 26 percent equity in each of the LNG carriers that would be chartered by GAIL and the company would also retain a similar right of up to 10 percent equity participation.
The ministry is planning to have time charter party agreements with major shipyards by the third quarter of 2014, in order to give adequate time for global majors for tie us and also ship building. GAIL is the largess LNG offtake holder from US, with contracts in place of 3.5 mt per annum from Sabine Pass project and another 2.3 mt from Cove Point signed last year. GAIL also has contracts with Gazrom in Russia and Gorgon project in Australia.
However, the big question is whether Indian shipyards have the ability to make LNG carriers. Many experts have also raised doubts about their ability and the available requisite technology at their disposal. Many have also said that if Indian shipyards are to jump into this business they would have to tie up with bigger companies in South Korea and China. But time will tell if they are capable of or not. But one this is sure: challenges make Indian companies more competent.