LNG – GAIL & India

Share of Natural Gas in Primary Energy mix

India Vs. World

22% 82% 65% 74%
23. 22. 23. 23.
25.00%

20.00%

15.00% 23 %
10.
2% 5%
7.5 8.1
10.00% 0%
6. 5

5.00%

0.00%
2000 2005 2010 2015
% Share of Natural Gas, India % Share of Natural Gas, World

Source: BP Statistical Review

 From early 2000, Gas share was around 7-8%, which increased during 2010-11 (above 10%),
due to increased KG D6 gas production and dwindled thereon.

 However, World-wide gas share is in the range of 22-23% from 2000-2015.

Natural gas share of primary energy in India low as compared to rest of the world
 Gas Demand Supply Scenario
GAIL internal demand assessment
388
MMSCMD

308 135
128
122
116
246 110
105
100
205 90 95
81 86
77 85 91
167 70 73 80
63 66 70 75
54 57 60 62 66
136 52 58
49 51 55
44 47 40 43 45 48
40 42 29 31 33 35 38 55 57 59
26 27 50 51 53
23 24 44 45 47 48
20 21 33 34 35 35 36 37 38 40 41 42
32 33
30 29 32
72 74 77 79 82 85 88 90
51 59 63 64 65 65 65 65 65 65 65 65 68 70
46 46 47

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Fertilizer Sector Power Sector CGD Sector

Other Sectors (Steel, Refineries etc.) Total

  2016 2020 2025 2030 2035 2040

Primary Energy Demand (Mtoe) 723 823 968 1139 1340 1576

Gas Demand (MMSCMD) 139 167 205 246 308 388

Share of gas as % of PED 6.3% 6.8% 7.1% 7.1% 7.6% 8.2%

LNG Value Chain

Source: PTTLNG
 Gas Supply Trend in India over a period of time - India

LNG market has evolved over time

180 50%

162
160 45%
155

144
40%
140
134 131
121 35%
120 118

104 103 30%

100 98
92
25%
80
20%
61
60
49 15%
43
40 40
40 35
30 32 10%
29
25
20 18
5%

0 0%
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LNG Imports Total Sale LNG Share Percentage

Source: PPAC website data, MMSCMD
 Sector-wise consumption of Natural Gas - India

Sector wise consumption

of gas (from PPAC) in 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
MMSCMD
Fertilizer 38 40 43 42 44 42
Power 62 44 31 29 30 32
City Gas 15 16 16 15 15 20
Industrial 0.8 0.7 0.4 1.1 1.1 1.9
Petchem. /Ref./IC/ LPG/ 46 44 43 41 39 41
Mfg.
Sponge Iron/ Steel 3.6 3.0 0.8 0.4 1.5 2.4
Total 166 148 134 129 131 139

Source: PNG Statistics, MoPNG

 Major Contract Terms of an LNG Contract
 Form - Master Agreement (with Confirmation Notes) / Sale Purchase Agreement / Term Sheet
 Term (Duration of the contract)
 Supply basis (Incoterms 2010 – DAP (DES) vs FOB vs CFR)
 Contract Quantity
 Quality and off-spec
 Take or Pay commitment
Sourcing Strategy of LNG :
 Supply or Pay commitment
 Risk & Title Transfer  Long Term (two third requirement)
 Taxes & Charges (Buyer’s vs. Seller’s)
 Credit Support - SBLC  Short Term / Spot (one third)
 Payment terms
 Representation & warranties
An expert opinion
 Governing law & dispute resolution
 Confidentiality provisions
 Notices & correspondences
 Trade Laws & restrictions
 Confirmation Note
 Measurement provisions
 Global LNG Trade- Fact Sheet

S.No. Value Remarks

1 264 MT Global LNG Trade in 2016. Largest year ever for LNG trade.

2 74.6 MT Traded on a spot or short term basis ~ 28% of total trade

3 73% Global LNG demand in Asia

4 340 MTPA Global nominal liquefaction capacity. It increased by 36 MTPA from 2015
USA: Sabine Pass Train 1 and 2 (9 MTPA); Australia : Gorgon (10.4 MTPA),
APLNG (9 MTPA) and GLNG Train 2 (3.9 MTPA); Malaysia Bintulu (3.6
MTPA)

5 141.5 MTPA Global liquefaction capacity under construction as on Jan.’16. Majority of

facilities being constructed in U.S. (62 MTPA) & Australia (53.8 MTPA).

6 830 MTPA Global LNG receiving facility by end – 2016.

7 478 Vessels Global LNG shipping fleet as of Dec.16.

8 19 Exporting countries
9 39 Importing countries. Four new countries joined the ranks of importers
during the year: Colombia, Finland, Jamaica and Poland
 Changes in International Market : Volumes
Additional wave of more than 100 MTPA capacity is leading to a huge supply overhang

Million tonnes

Source ICIS
 Changes in International Market : Price
Prices of Spot LNG have reduced by around 60% in major markets of Asia, Europe and Latin America
World LNG Landed Prices Feb 13

World LNG Landed Prices Aug 16

Source FERC
LNG Price – Trend w.r.t. Crude & Gas
 Changes in International Market
Spot trade % is increasing in the overall LNG trade
Global spot Vs Term LNG Trade Unit MTPA (Left) ; % (Right)

 Low prices of spot LNG due to supply overhang has made downstream buyers averse towards entering into
long term contracts

 Also large customers (Steel, IPPs, and Refineries) are trying for direct import of LNG

 The price of LNG under long term contracts are currently uncompetitive compared to spot LNG thereby
undermining its marketability.

 Henry Hub indexed LNG is highly uncompetitive compared to Brent linked LNG: Higher fixed liquefaction
charges along with shipping costs
Re-gas
Infrastructure
NANGAL

BHATINDA
Hisar
DELHI
Jhajjarr
BAREILLY
GURGAUN
AURAIYA LUCKNOW
MATHANIA AGRA DISPUR
MUNDRA JAISALMER
JAGDISHPUR
BARMER
5 mmtpa GWALIOR
KANPUR
PATNA
PHOOLPUR

KOTA JHANSI GAYA

VARANASI AGARTALA
Chhara UJJAIN VIJAYPUR
Mundra BOKARO
5 mmtpa BHOPAL
JABALPUR Existing LNG Terminal
BHARUCH BHILAI KOLKATA
CUTTACK
Upcoming LNG Terminal
DAHEJ I & II
ORRISA
10 + 5 mmtpa DHAMRA
5 mmtpa
HAZIRA
5 mmtpa RAJAMUNDRY
SOLAPUR

DABHOL HYDERABAD
KAKINADA
Existing Re-gas capacity 26 MMTPA
1.4 + 3.6 mmtpa 3-5 mmtpa
CHENNAI
New re-gas capacity 30-33 MMTPA
JAIGARH BANGALORE

3-4 ENNORE
5 mmtpa By 2020-21 , Aggregate re-gas
mmtpa
capacity over 55 MMTPA

COIMBATORE
KOCHI
5 mmtpa
 GAIL: Diversified Gas Sourcing
Russia-Gazprom
2.5 MMTPA
2018-2038
US-Henry Hub
Cheniere & Dominion : 5.8
MMTPA Turkmenistan (TAPI)
2017/18-2036/37
38 MMSCMD(10.6 MMTPA)
Qatar 2019/20-2048/49
4.8 MMTPA until
2004/16-2028

Gorgon
0.42 of 1.44
MMTPA 2017-2034

Long-Term Import Portfolio Diversification across Price Indices

Quantity-:- 24.12 MMTPA( ~86.83 MMSCMD) incl. TAPI Henry Hub -:- 24.05% (5.8 MMTPA)
Diversified sourcing across geography: Russia, Middle-East, Australia, Japanese Crude Cocktail -:- 32.01% (7.3 MMTPA)
USA, Central Asia FO/GO -:- 43.95% (10.6 MMTPA)
 Rationale of Henry Hub Contracts

GAIL signed the 2 HH contracts in 2011 & 2013 -

• HH LNG then was much cheaper than Oil Indexed Contracts
• Diversification of Index risk
• Diversification of Geographical risk
• Security of Energy Supply
• Flexibility to Trade volumes in international Market – No
Destination Restrictions
 Optimization strategies for sale of US volumes
 Time Swap
a) An Entity sells to GAIL on DES India basis during 2017
• Price DES = Oil Indexed Formula ($/MMBtu)
• Quantity = Mutually agreed Quantity

b) GAIL sells to the same Entity on FOB basis at Sabine Pass same/diff. quantity during 2018-2019
• P = 115% HH + 3 $/MMBtu + Small Margin
• Quantity = Mutually agreed Quantity

By Time SWAP, GAIL can mitigate some of its

volume risk in 2018 instead of contracting
new volumes to meet spot/short-term
demand in 2017

Contractual issues : time period for different

legs are different.

GAIL has sold some Henry Hub volume in international market in Time Swap
 Optimization strategies for sale of US volumes
 Destination Swap
a) GAIL sells to the Entity on FOB basis at Sabine
• P = 115% HH + 3 $/MMBtu
Contractual issues: Ability to
• Quantity = Mutually agreed Quantity
off-take in FOB leg and
supply in DES leg
b) An Entity sells to GAIL on DES India basis during the same period
• Price DES = GAIL’s Sabine Pass FOB cost price + Constant
• Quantity = Mutually agreed Quantity

  From To Via Distance (nm)

Qatar Europe Suez 6385

Original Route
Sabine Karachi Suez 9541
Total Distance (A) 15926

Swapped Qatar Pakistan Direct 903

Route Sabine Europe Direct 4969
Total Distance (B) 5872
Shipping Optimization : A-B= ~10,000nm

Destination Swap of some volume for first few years done, the price of such LNG (when DES)
would reduce to levels closure to the RasGas LT RLNG price, under present market condition.
 Shipping arrangements for LNG Sourced from US

• Appointed Shipping Corporation of India (SCI) for charter hire of near term LNG
ships requirements.

• Charter hire exercise for existing LNG ships for (3+1) year term is under
process.

• Make in India - PMO constituted a Committee to suggest a way forward

regarding Long Term Chartering w.r.t. making the LNG ship in India. Interaction
with various stakeholders to evaluate various pros and cons regarding LNG
ships building initiative in India is in process. Upon suitable decision, long term
chartering of ships shall be started under Make In India campaign.

• Management of Time Charter Party agreements


LNG for Heavy vehicles
LNG-run trucks represents a
significant improvement over
diesel fuel with advantage in
terms of cost and emissions
Building a network of fuelling
stations to ensure the supply of
LNG is major challenge
Growth Drivers
Railways on LNG
Technology is already available
Railways have launched their first
CNG train in Jan’2015
Options are being explored to use
LNG in locomotives
Sagar Mala/National Waterway
Government trying to start LNG
barges on Ganga by 2018-end
Globally, growing number of ship-
owners turning to natural gas due
to stringent emission rules and
economic benefits
 Conclusion
• India is one of the fastest growing economy in the world and
macro-economic drivers indicate significant upside in
consumption of Natural Gas in coming decades.

• Key for Indian gas markets sustainable growth would be

affordability of LNG for anchor sectors of the economy.

• Strong policy thrust by GoI for supporting consumption of

natural gas and enabling infrastructure expansion to aid
investment flows.

• GAIL’s LNG portfolio may be seen as a stress today but may

become an asset with certain changes in the market.
THANK YOU!