GAIL included in Global Sustainability Index
GAIL (India) Limited has been included in the prestigious FTSE4Good Index Series for the fourth time in a row, affirming the company’s strong commitment towards Environmental, Social and Governance (ESG) practices in the oil and gas sector. Created by the global index and data provider FTSE Russell, the FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong ESG practices. The FTSE4Good indexes are used by a wide variety of market participants to create and assess responsible investment funds and other products. GAIL Chairman & Managing Director Manoj Jain said, “I am pleased that GAIL (India) Limited has been included in the FTSE4Good Index Series for the fourth year in a row. This is a proof of our commitment towards sustainable development while also doing business responsibly and focusing on our stakeholders.” GAIL is striving to implement Sustainability initiatives across all sites of the company, he added. FTSE Russell evaluations are based on performance in areas such as corporate governance, health & safety, anti-corruption and climate change. Businesses included in the FTSE4Good Index Series meet a variety of environmental, social and governance criteria. The FTSE4Good Index Series ranks the largest global companies based on environmental, social and governance (ESG) performance and transparency in information disclosure. The FTSE4Good indexes are used by investors to create and assess responsible investment funds and other products.
Cheap spot LNG threatens India’s new deepwater supply
Low spot liquefied natural gas (LNG) prices are threatening India’s new deepwater supply, with around 35% of uncontracted volumes in 2022 at a higher risk of being replaced by spot LNG. Analysts at consulting firm Wood Mackenzie said on Tuesday that the full commercialization of upcoming deepwater volumes is at risk due to the impact of Covid-19 on-demand, and prospects of low LNG prices persisting at least until 2022. Over 1 billion cubic feet per day (Bcf/d) of new supply is expected to come from deepwater fields by 2023. However, only 15%, or 200 million cubic feet per day (Mmcf/d), of this volume has been contracted to date, Kallanish Energy reports. The Asian country traditionally preferred oil-linked LNG contracts as it offers more transparency and tended to be less volatile than a gas hub or spot LNG prices. However, low spot LNG offers huge advantages to those able to import the fuel. “Procuring spot LNG mitigates the risk of ‘take or pay’ obligations compared to the new deepwater domestic gas contracts, as buyers are indebted to pay for a minimum 80% of contracted gas volumes regardless of seasonal demand changes,” pointed senior analyst Vidur Singhal. “Historically, price-sensitive Indian buyers have increased spot purchases when prices drop, and we see this trend playing out through next year,” he added. Wood Mackenzie believes LNG appears to be more economically competitive compared to domestic gas over the next two to three years. But the regional market, infrastructure availability, upstream competitiveness, and strategic decisions of buyers will influence the level of spot replacing domestic gas. The critical period for producers will be the 2020/2021 period when spot prices are set to remain low, forecast principal analyst Alay Patel. “Upstream companies might have to face difficult decisions when they auction their volumes through to 2022. Either accept lower prices and consequently low returns or delay sales until the prices are more attractive,” he added. Sellers need to ensure the offshore gas prices are viable for industrial and power consumers to absorb additional volumes in the states of Andhra Pradesh and Telangana. These eastern states have no access to LNG. However, in Gujarat and Maharashtra, analysts estimate deepwater gas to be more expensive than spot LNG at 8.4% indexation after adding the East-West pipeline tariff. The western region has a robust LNG storage and pipeline infrastructure, with access to both LNG imports and domestic gas supply.
Unified tariff on gas pipelines from September
In yet another reform initiative in the oil and gas sector, pipeline operators in the country may shift to a unified or pooled tariff regime for inter-connected cross-country gas pipelines from September 1. A unified tariff may do away with levy of multiple tariffs on customers, ensuring equitable distribution of gas and uniform gas-based economic development across the country. The current system of tariff determination leads to multiple pipeline tariffs on customers who have contracted for gas which flows from multiple pipeline operators. According to official sources, downstream oil and gas regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB) has finalised the draft regulation on unified tariff and would fix the tariff by August-end and implement it from the first day of September. With this, one nation, one gas grid, one pricing would be implemented across the country, bringing relief to customers in far-flung areas who were being charged extra for gas transmission but raising charges for other existing customers to bring about price equalisation. According to a report by ICICI Securities, unified tariff mechanism would boost utilisation on GAIL’s Jagdishpur-Haldia-Bokaro-Dhamra pipeline (JHBDPL) by virtue of lowering of tariff under pooling of transmission prices. When the Cabinet Committee on Economic Affairs approved the JHBDPL, GAIL had proposed unified tariff to ensure viability of this pipeline, and had estimated unified tariff on the JHBDPL and other inter-connected pipelines at Rs 57/mmbtu vs Rs 173/mmbtu, if fixed separately for the JHBDPL.
GAIL urges government to use diplomacy to help rework expensive US LNG deals
GAIL has urged the government to use its diplomatic ties with the US to help rework the company’s expensive gas purchase deals with the American suppliers at a time the liquefied natural gas (LNG) rates in the spot markets have fallen to record lows, according to people familiar with the matter. GAIL has contracts for the purchase of 5.8 million tonnes a year of liquefied natural gas (LNG) with two US suppliers, deals that were signed between 2011 and 2014 as LNG prices roared across the world. A global price reversal since leading to a recent collapse in the spot market has made it harder for GAIL to market the expensive US gas. GAIL has written in a recent letter to the government that the US suppliers should consider aligning contract prices with current market realities and reduce annual volumes, according to the people familiar with the matter. GAIL wants the total supplies for the contracted 20 year-term to be stretched over 25 years, the person said GAIL is banking on strengthening ties between India and the US, and hopes a government-to-government dialogue could get private US suppliers to the negotiating table, he said. “GAIL is contract-bound to buy US LNG but if it can’t further sell this to customers, how long can it keep buying and paying for US LNG. The US suppliers should understand this,” said the person. The rate for US LNG brought to Indian shores is about thrice that of the one bought in the spot market these days. Spot rates for India delivery have dived to $2 per million metric British thermal unit (mmBtu) and a global supply glut is expected to keep rates low for long. GAIL’s costs mainly include Henry Hub gas price, liquefaction and transport costs and the company primarily wants modification in liquefaction rates, which are about $3 per mmBtu, according to people cited above. GAIL has tried in the past to renegotiate LNG deals but was always faced with unyielding US suppliers. By contrast, it has been able to rework its contract with Russia’s state-run Gazprom. Petronet LNG, India’s largest gas importer, too has successfully renegotiated with ExxonMobil and Qatar for long-term LNG supplies.