First by an Indian PSU: GAIL scouting for 26% stake in US-based LNG project

Is open to either an existing plant or one scheduled to be commissioned by 2026-27; also wants to source one mtpa of gas the LNG liquefaction plant/project on FOB basis for 15 years

State-owned GAIL (India) has floated an expression of interest (EoI) to acquire up to 26 per cent equity in a Liquified Natural Gas (LNG) liquefaction plant or project in the United States. The move represents the first attempt by an Indian public sector undertaking to own an energy asset in the US, which remains the third-largest source of LNG for the country.

According to documents posted on the company's website on Thursday, GAIL is open to acquiring a stake either in an existing plant or one scheduled to be commissioned by 2026-27. The last quarter of that year is when GAIL wants to tentatively commence the supply of LNG.

"In addition, GAIL is interested, directly or through any of its affiliates, to source one million tonnes per annum (mtpa) of LNG from the LNG liquefaction plant/project on FOB basis for a period of 15 years on mutually acceptable terms and conditions," the company said in the EoI.

GAIL has also kept open the option to extend the contract for LNG supply by a further 5-10 years. The last date for submission of the EoI is March 10.

GAIL (India) is depending on the US to secure a stable supply of LNG cargoes. Currently it has two contracts to buy a combined 5.8 million tonnes a year of LNG from the US, consisting of 90 standard sized cargoes.

Last week, GAIL signed an advance pricing agreement (APA) with the Central Board of Direct Taxes for fixing the transfer pricing margin payable on its long-term LNG sourcing contract from the US for a period of five years.

An APA is used to resolve transfer pricing issues in advance, i.e., before the cross-border related party transaction actually takes place or, at least, before a dispute arises in respect of such a cross-border deal.

Long-term play

GAIL had been struggling to replace supply from a former trading arm of Gazprom, which has not been delivering shipments on schedule since May 2022.

Back in 2012, Gazprom’s former subsidiary, Gazprom Marketing and Trading Singapore (GMTS), had signed a 20-year contract to supply GAIL with 2.85 million tonnes of LNG a year.

Supplies under the deal had started in 2018 and the full volume was expected to be reached in 2023.

But after the Russian invasion of Ukraine, Germany seized control of Gazprom Germania in April, housing it under Gazprom Germania GMBH. Subsequently, Gazprom gave up its ownership of the company without any explanation, and imposed sanctions.

Up to 55 per cent of India’s local gas requirement is imported. On the other hand, while gas meets only 6.2 per cent of the country's energy needs, the Centre has been planning to raise this figure substantially in order to reduce dependence on petroleum.

New Delhi is advocating an aggressive gas purchase policy, and balancing sources of import, most of which have originated from Qatar in recent years.

Qatar and the US—the two largest producers globally—currently supply India with LNG via multiple contracts. The third largest producer Australia mostly supplies to China.

GAIL has also signed an agreement with the Abu Dhabi National Oil Company (ADNOC) to expedite short- and long-term supply.