Making the most of the ongoing Ukraine crisis, the state-run GAIL has advanced the LNG (liquefied natural gas) shipments from the US following the flexibility offered in the contract due to runaway demand and skyrocketing prices in Europe due to growing border tensions between Russia and Ukraine.
Simultaneously, the utility is looking at short-term contracts of 3-5 years for 1-2 cargos a month from early next 2023 to meet an anticipated domestic demand on the growing pace of economic activities, commissioning of new fertiliser manufacturing capacities and expansion of city gas networks.
According to GAIL chairman Manoj Jain, the company intends to use 4-5 US cargoes for arbitrage. “Forward time swap for two cargoes was done in the October-December quarter of 2021 and again in the current quarter,” he said.
GAIL's long-term US LNG contract for nearly 6 million tonnes LNG a year is benchmarked to Henry Hub and costs $5.45 per unit. Gas prices in Europe are linked to Brent crude, which has spiked to $90/barrel. While flaring Brent alone jacked up gas prices in Europe and other crude-linked markets such as Japan and South Korea, the harsh winter drove them to three times the Henry Hub as demand spurted. Prices in the spot market shot up to $27-30 per unit.
This has made GAIL's US volumes very attractive due to arbitrage between the Atlantic vs Pacific region and between current and future trades. The company is also going for destination swaps to cut shipping costs. Under this, it would sell the US LNG to a buyer, say, in Europe and get an equivalent volume from a West Asian supplier, which is nearer.
The smart play saw the company's profit in the October-December period more than double to Rs 3,780 crore, the highest-ever in a quarter, from a year ago. “We have been conscious in tying up gas supplies and our basket is pretty diversified, balancing risks,” Jain said.
In addition to the US, GAIL has a 2.5 million tonnes LNG contract with Russia's Gazprom, a 4.8 million tonne deal through Petronet LNG, in which it is a promoter, with Qatar and 0.4 million tonnes with the Gorgon project in Australia.
GAIL had first signed time-swap deals for its US LNG in 2017-18. Under three deals signed that year, the company bought LNG from international companies and sold an equivalent amount of Henry Hub-indexed volumes during 2018-19. That time-swap was done as it did not find buyers for imported LNG.