India’s GAIL avoiding to take contracted U.S. LNG volumes, inks 3 swap deals and plans more

State-run gas company GAIL (India) Ltd has signed three time-swap deals with international players to sell some of its previously contracted U.S. LNG supplies as it is trying to reduce costs for price-sensitive Indian customers.

The Indian company has a contract with Cheniere to buy 3.5 million mt per annum of LNG for 20 years and has also booked capacity for another 2.3 million mt at Dominion Energy’s Cove Point liquefaction plant. These supplies are scheduled to start in 2018.

GAIL is not the first Asian LNG buyer trying to avoid shipments of Henry Hub-linked LNG from the U.S. after the global oil and gas price downturn reduced the discount of U.S. gas relative to other suppliers.

The company is also seeking destination swaps to reduce shipping costs of U.S. LNG.

GAIL has concluded three time-swap deals, where LNG volumes “are purchased from international parties during the financial year 2017-18 with an agreement to sell equivalent volumes of HH (Henry Hub) volumes during FY2018-19,” the company said in its latest annual report.

In parallel, Gail is also making efforts to “optimize contracted U.S. LNG volumes through destination swap transactions that could significantly reduce cost of shipping HH LNG to the Indian ports resulting in improved affordability for the Indian customers,” it said.

Gail said in the annual report it had contracted the U.S. LNG to meet the demand of growing Indian economy with power sector being considered as a major buyer.

“However, power produced from LNG is not being scheduled by DISCOMs due to cheaper alternatives including renewables thereby leading to stranding of significant capacity out of 25,000 MW of installed gas based power plants,” the company said.

LNG booked by GAIL under the deal with Cheniere, which owns the Sabine Pass terminal in Lousiana, will cost 115% Henry Hub plus a fixed liquefaction fee of $3/MMBtu.

Looking at this year’s prices, this equates to a cost of more than $8/MMBtu on a delivered basis to India.

GAIL did not reveal the amount of U.S. LNG volumes it swapped in the deals.

It was reported earlier this year that the company signed its first time-swap deal with Swiss trading company Gunvor. Under the deal, Gunvor is expected to deliver 15 LNG cargoes or 0.8 million tons of LNG to GAIL in the period between April and December this year.

Gail, however, did reveal in the company’s annual report that it has already tied up “substantial volumes” of its U.S. LNG supplies in domestic and international markets for the year 2018.

The company also said it is in “advanced stage of discussions” to tie up LNG supply for the upcoming/revived fertilizer units in the domestic market.

Efforts are also on to market regasified LNG to anchor customers like refineries and steel plants along upcoming and existing pipelines, it said.