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Jan 2016

The government has advanced the launch of HSD and MS products that are BS-V and VI compatabile in a desperate attempt to curb high pollution levels in Indian cities.
8For reference purposes, the new matrix of the proposed year-wise sale of SKO and HSD as per new norms.
8The data is further segmented in terms of status of implementation of news norms so far.
8HSD specifications under different compatrability norms.for different attributes
8Similar MS specifications
8Status of future roll out plans are also given.
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The following additional data is carried on the MRPL refinery and its plans to improve the qualtiy of fuel and revamp its processing capacity:
8Current installed hardware and future requirement
8Typical distillation yield of benchmark Arab Heavy Crude in the refinery
8Capacity basis considered for existing key units
8Details of configuration studies
8Capacityt basis assumed for DHDT revamp
8Capacityt basis intent for SWS unit
8Specifications of new tankage required
8Material balance and consequent utility requirement of short residues, VBU, Vacumn Gas Oil, HCU, CHT, New FCC Feed Preparation Unit, PFCC Feed, PP, GasOil, DHDT, SKO, Naphtha, Hydrogen 1,2 & 3 Mass, ISOM, BHT-CCR 1 & 2 Balance, RSU, MXU, Combined Naphtha Splitter, Selective Desulphurization Unit, LPG, Hydrogen, Sulphur, Refinery Phase 1, 2 & 3 Balance, Power & Steam Balance, New Units Utility Reqirement.
8Overall Material Balance of BS V & VI Complaint MRPL refinery
8SOX EMission expected
8Block flow diagram of the refinery
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It is not just demand and supply that is the main driver behind the sharp fall in crude oil prices. Global geopolitics and economic grwoth are also the other main drivers.
8From the Iranian revolution and the Arab oil embargo to the Iran- Iraq war , the rise and fall in the price of the barrel has been influencd by world crises at several critical moments in the recent history of the modern world.
Several factors influence crude prices, and among the observatrions are:
8Economic growth coincides with rise in prices
8Then again, OECD countries have shown that lower liquid fuels consumption have matched rising oil prices. Rising oil prices held down global oil consumption growth from 2005-2008, despite high economic growth.
8The years 2003-2008 experienced periods of very strong economic and oil demand growth, slow supply growth and tight spare capacity.
8Then again, open interest in crude oil futures grew over the last decade as more participants entered the market and had a bearing on oil prices.
8Commodity index investment flows have tended to move together with commodity prices.
8While correlations (+ or -) between daily price changes of crude oil futures and other commodities generally rose in recent years , the correlations (+ or -) between daily returns on crude oil futures and financial investments have strengthened over the last decades.
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The market for shipping of crude continues to witnessed looses last as carriers focus on adjusting to 2016 WS flat rates anbd 12-year low crude prices.
8Meanwhile orders for new carriers continue to be bouyant given that new building prices remained attractive and the prospcts continue to appeare bright.
8With crude oil prices at suv $30/barrel levels and market expectations pointing to further discounted prices in the coming months, one thing remains certain for 2016 and that is oil remaining very cheap.
8The expectation is that demand for crude will be sustained and this will consequently help tanker rates to remain buoyant.
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Cairn India Ltd plans to conduct a range of HSE studies across its various facilities. Some of these studies will be done onsite while others will be offsiute.
The following onsite studies are planned:
8HAZOP
8HAZID
8Bow tie Analysis & identify the critical barriers
8SIL Classification
8F & G system review, optimisation & mapping
8Simultaneous Operation (SIMOPS).
8OISD Applicable Standards Review
Among the offsite studies planned are:
8Fire & Explosion Risk Assessment (FERA) & Emergency Escape and Rescue Analysis (EERA).
8Quantitative Risk Analysis (QRA).
8Emergency System Survivability Assessment (ESSA).
8Noise Mapping.
8Electrical System Safe Operability Review (SAFOP)
8Transport of dangerous goods (LPG, LNG, explosives).
8Thermal (Flare) radiation modelling
8Gas dispersion studies.
8Ground Level Concentration (GLC) study as per Environment Protection Rules, 1986.
8Toxic effects modelling in complex terrain using 3D dispersion modelling techniques.
8CFD modelling for vapour cloud explosions and modelling for jet fire case.
8Final preparation of COMAH (Control of Major Accident Hazard) report / Safety Case Report for MAH / offshore installation in line with UK HSE guidelines
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The big challenge before the petroleum ministry today is whether it wants to work as a facilitator for an open gas market or a preserver of the interests of the oil and gas companies that it owns.
 8For it faces the hobson's choice here where the interest of the oil companies may be in direct conflict with public interest.
 8If the entry barriers in the gas makert are freed up today, a large fertilizer company such a IFFCO can have the freedom to strike a deal for a cargo of LNG at a distress price of $4/mmbtu and distribute it to other fertilizer companies as well.
 8A power company should have the right to refuse an LNG price offered by GAIL or IOC if it can source a lower price from an LNG supplier out of Canada, Africa or Australia.
 8This is the time for the govrnment and the PNGRB to act in concert to break the GAIL monopoly over both trading and transmission of LNG. These two activities should be split up for greater transparency and freedom in the Indian gas market.
 8Given that the Indian pipeline network has a low capacity utilization, common carrier principles should be supportd and strictly enforced.
 8Given a surfeit of LNG terminals coming up, transparent tolling arrnagement should be the order of the day while common carrier priniples should allow seamless flow of gas right up to the factory gate for any LNG cargo, regardless of its ownership.
 8All of this will come at the cost of public sector monopoly.
 8And it will indeed be a test of leadership at the helm in the petroleum ministry and the govenment.
 8Historic changes in the oil and gas market require strong leadership at the top to act as catalyst.
 8How exactly the leadership will behave when push comes to shove remains to be seen.
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There will be many who would think that India extracted a great price for gas from Qatar but will it be the Qataris who will have the last laugh?
 8The fact that Qatar was able to set a price low enough to keep GAIL's LNG cargoes from the US out of the Indian market was seen as a great tactical victory by Qatar.
 8But then nothing is any longer sacrosanct in the world energy markets today. The world is changing so rapidly that the last laugh can well belong not to the Qatar but someone else down the line.
 8There has been much black slapping over the Qatari master stroke that not only allowed a retention of its monopoly of the Indian market by securing long term contacts for 8.5 MMTPA of LNG.
 8But if a blood bath were to bring the price of spot LNG significantly lower than the price at which Qatar has struck a long term deal with India, then it is quietly likely that consumers will opt for cheaper spot prices.
 8Having tasted victory after walking away from take or pay arrangements, Indian customers are capable of trying to repeat this behavior again.
 should lower prices prevail in the spot market.
 8And at the end of the year, when Petronet LNG Ltd is mean to square up all accounts with RasGas, there will be a demand again for waiver of take or pay provisions for unsold cargoes and Qatar will have no option but to fall in line or it faces the prospect of losing market share if PLL were to renege on paying penalties.
 8Written contracts will no longer be sacrosanct in a market where sellers are keen on ferreting out a market share at any cost.
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Highly placed sources have told this website that GAIL might end up putting off the contract to buying up to 12 new LNG ships till the year 2021-22 when the market for LNG is likely to improve from the supplier point of view.
 8No firm information is available from GAIL yet but the company brass seems to have been shaken up by the recent developments in the LNG market.
 8There is now an assessment that there will be adequate availability of LNG carrier in the market for hire when its US contracts begin to get active in 2017-18.
 8In all, GAIL is committed to buy 6 MMTPA of LNG cargoes from US LNG liquefaction plants.
 8The earlier thinking was that the gas will be shipped to India as the price calculations were turning out to be positive but with the recent PLL-RasGas deal and the turn in the LNG market subsequent to an over supply situation, the thinking has changed in GAIL.
 8The gas major, it seems, will have to work as a trader in the global market for LNG as the possibility of a large proportion of its US LNG volumes being sold in the spot and not in the long term market looms large.
 8This can turn out to be a dangerous game and so the gas major is not looking at raising its liabilities just now by owning LNG carriers as it can raise its liability by billions of dollars, something that its balance sheet may not be able to sustain if things were to go wrong.
 8Ironically, it was the government's intervention while pushing for indigenous local participation in the tender for building LNG carriers for GAIL that forced the gas major to put off the award of contracts for these vessels.
 8This turned out to be a blessing in disguise quite by default, for there is now a complete change of heart at GAIL and it is no longer looking at awarding these contracts anytime soon.
 Nothing reflects more badly on the quality of leadership in GAIL than the fact that it took a quirk of fate -- a government intervention for quie another reason altogether -- to escape an estimated $10 billion long term liability that would have devolved on the company if orders were placed for purchase of these ships.
 8This reflects a certain recklessness of conduct by the GAIL brass which is not in consonance with the mandate given to it by the government of India.
 8Heads must roll in GAIL for its inability to anticipate the future, so much so that it could have led to a colossal mis-judgement that could have eventually caused a collapse of the compamy.
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The LNG market is going to get bloodier before it begins to get better.
 8The glut of new LNG terminals may in fact bring down the cost of spot LNG even further, perhaps to $6/mmbtu or $5 or, impossible as it may seem now, even lower.
 8Now, why would prices go down lower than what they are currently? Already the Henry Hub price is already low enough, so how much lower can they go?
 8But there are those who claim that new LNG suppliers may start a price war just so that they can pick up some market share.
 8The attempt will be to cover the variable cost as fixed cost -- in some cases, both in upstream development and consequent LNG liquefaction terminal facilities -- is already a sunk cost.
 8Any margin above the variable cost will bring in some incremental cash that will otherwise not be available if the terminal were to remain idle.
 8When will demand pick up enough to equal supply so that prices can stabilize?
 8This is a question no one seems to have an immediate answer. For demand is dependent on a multitude of factors, including how crude prices behave.
 8Demand for LNG in India has remained tepid despite a fall in price because buyers find it cheaper to use naphtha and fuel oil -- because their prices have crashed -- instead of LNG.
 8So, unless crude prices go up, LNG prices may not move up. For even though both commodities have their own separate dynamics, they are inter-dependent on each other in more ways than one.
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Developments in the LNG market will have far reaching consequences for Indian E&P operators as well.
 8If spot LNG prices were to hit rock bottom, and stay there for some time, what then should be the benchmark price at which the likes of ONGC, RIL-BP or GSPC -- all with considerable deepwater gas reserves in India -- should go for capital approval of their projects?
 8Clearly, keeping an eye on their own breakeven point will no longer be enough.
 8The blame so far has been passed on to the government for not allowing them to produce gas at market rate but then a market rate -- now determined entirely by the spot LNG price in India -- may in itself not be enough to solicit a positive IRR on their E&P capex.
 8For the RIL-BP duo, the demand by ONGC for return of Rs 10,000 crore or more in gas allegedly spirited away by wells dug in the D-6 block from the reservoir of the adjacent ONGC block will be a contingent liability that will further stymie efforts to conduct development work in the block.
 8There is no way that anyone connected with the Indian E&P industry can be protected from the tsunami that has hit the oil and gas markets. The waves are far too high and crashing in far too rapidly for anyone to take preemptive measures.
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Not too long back in the past, the GAIL brass was feted for its bold decision making capacity, for its ability to take on the world and strike LNG deals worth billions of dollars.
 8All that has since changed. What was once an opportunity is today a cause for much concern and hand wringing.
 8It is now known that the breakeven ex-ship price of GAIL's shipment from the Sabine Pass terminal to India -- of around $7.7-8.4/mmbtu -- will not land them a single long term contract unless the circumstances turn more propitious.
 8To begin with, RasGas price will be lower than shipments that were meant to be brought in by GAIL all the way from the the US.
 But that's not where the story ends.
 8Given the way spot LNG prices are likely to dive by the time new LNG terminals go on stream, GAIL may find it difficult to sell its US cargoes not just in India but anywhere else in the world.
 The situation may be temporary and eventually the projection is that LNG demand will far outstrip supply but, for the interim period, the grim reality is that GAIL will have to pay close to a billion dollars in fixed cost to US based LNG terminals over and above a premium on the Henry Hub price without knowing where the LNG is going to go and at what price.
 8In the worse case scenario, sustained losses can get incurred for a long enough time for them to begin eroding the net worth of GAIL.
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There are many who claim it is this devil-may-care culture within GAIL that lead not just to the build up of risk assets that are capable of wiping out the company but to a pipeline blast in the KG Basin that eventually led to the loss of 22 lives on June 27, 2014.
 8All of them died while they were still sleeping on account of gross negligence by GAIL and its management.
 8It has been established that GAIL knew about the precarious condition of the pipeline and yet done nothing to repair it. 
 8The gas major was found to be repairing the pipeline on a regular basis using only temporary measures. 
 8The pipeline was designed for dry gas while wet gas was allowed to be ferried
 8A dehydration plant was meant to be set up but never was.
 8There were suggestions made to use a corrosion inhibitor but that was ignored by GAIL
 8Scrapper pigging was not carried out in the pipeline even though this was essential to take out water and condensate
 8No procedures were laid down on how temporary repairs should be carried out and this was the main reason why the blast occurred.
 8A rig residue analysis, which is important to understand the health of a pipeline system, was never carried out
 8Worst was that the command control structure that was an essential part of the safety regulations was there only on paper. 
 8What were the consequences: 22 innocent people were burnt to death in their sleep and many more were injured?
 8What action action was taken against the management of GAIL? Nothing at all!
 8Did anyone go to jail for loss of lives on account of willful neglect? No!
 8Was there a criminal charge on any GAIL official for loss of lives? No!
 8Was anyone punished or sacked? No!
 8This incident and its aftermath is a telling commentary on how the oil and gas industry functions in India. 
 8And government needs to fix this anomaly with utmost urgency.
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What will be the status of the status of the $5.19 billion investment paid by the ONGC-OIL combine to pick up a 20% stake in the Rovuma Area of Mozambique.
 8At current the current benchmark LNG price of around $7-7.5/mmbtu, just the cost of infrastructure of the Mozambique project at current cost levels will be around 80% of this price.
 8This does not leave enough scope to recoup upstream and shipping costs at current price.
 8Clearly, the breakeven price is far in excess of the LNG market price.
 8This in turn means that the project will not be built anytime soon.
 Independent estimates claim that the project will be viable only from the year 2025 onwards.
 8On hindsight did ONGC and OIL pay too high a price for a block where the upstream development and the attendant LNG trains are yet to be constructed. 
 8According to an estimate made by PriceWaterhouseCoopers, the capex needed to build a two-train LNG project in Mozambique was a massive US$2.14 million per bcf of net gas volume. That’s a total investment of US$26.1 billion whereas Anadarko -- the operator of the project -- had last year pegged the cost lower at around $20 billion. Some estimates are now saying that the steep fall in the cost of equipment and services in the petroleum sector can bring the the price tag lower still.
 8The price tag means that the OVL-OIL combine would have to shell out another $4 billion towards the project. Or if the project cost comes down to $15 billion, the consortium's investment will be around $3 billion
 8Cumulatively, the two Indian companies would have invested between $8-9 billion for a 20% charge on the two trains of LNG with a capacity of 6 MMTPA each. This is over and above the freight and gasification charges that will have to be paid additionally
 8It is patently evident that the IRR will be negative on such investments, given the abysmally low price of gas at present or anytime soon in the future. 
 8Even for Bharat Petro Resources Ltd (BPRL), a subsidiary of BPCL, which walked into the project much earlier in 2008 without paying the high upfront premium paid by ONGC and OIL, the cost economics were turning out to be below the hurdle rate on its 10% stake.
 8The IRR for BPRL was 11.75% assuming a gas price oof $12 but now that the gas price has plunged, the  IRR has gone below the hurdle rate of 10%.
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GAIL has sought a change in Rule 12 (1) of the of the Central Sales Tax rules so as to provide that a single FORM C will cover all transaction of sale in a calendar month.
8This will benefit the CST sellers during provisional and final assessment and bring uniformity in issuing forms for inter-state sale or stock transfer
8The rule provides for period of transaction to be created in a single FORM C and FORM F respectively.
8A single FROM C covers all transaction of sale which takes place in a quarter and a single FORM F covers declaration of value of transfer of goods effected during the period of a calendar month.
8Thus there is an apparent inconsistency in provision relating to different forms under different rules.
8Moreover considering the increasing volume of business across the country, it will be prudent if the period of issuance of FORM C is also on monthly basis
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GAIL has also put in a demand for special tax provisions under the Central Sales Tax Act, 1956 for facilitating natural gas trading such that:
-- Inter-state swapping of gas between different suppliers is not treated as "sales" liable to tax under CST and VAT rules.
-- Inter-sate sale or stock transfer of gas is allowed based on the contractual movement or allocation made by the gas aggregator in a common pipeline network.
8The gas major claims that this will benefit gas consumers which are mostly in the power and fertilizer sector.
8It will bring about uniformity in the gas sector and discipline in the taxability of gas in different states.
8It will also facilitate comingling and swapping of gas that will smoothen the transfer of gas across India.
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GAIL continues to pursue its case for exemption of service tax on on transportation of natural gas where the seller of the gas sells as well as transports the gas till the point of delivery of the buyer and where the ownership of gas is simultaneously transferred.
8GAIL has argued that the manner of raising the sale bill (whether transportation charges or any other component are embedded in the price of gas or shown separately) does not alter the basic nature of such a contract which remains essentially a "contract for sale".
8The argument made by GAIL is that service tax should not be payable on any activity associated with the transaction of sale where the component value relatable to such activity forms part of the total sale price and attracts VAT or CST under CST or VAT tax rules.
8This will reportedly be in line with the CBDT circular on the issue of deduction of tax at source on payment of Gas Transportation Charges by the purchaser of gas to the seller of gas.
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Why is the American economic engine the most powerful in the world?
8This is because it is fired by the American oil and gas industry. Why will an economy not be strong when it is powered by gas available at less than $3/mmbtu and where you are an exporter of crude and gas from being an importer a few years ago.
8A flurry of value added American industrial enterprises, from fertilizers to petrochemicals, are now being set up, powered by cheap gas.
8Quite clearly therefore the American story cannot be repeated in China or India where the price of gas is much higher.
8America’s oil and natural gas industry supports approximately $1.2 trillion in U.S. gross domestic product and provides tens of millions of dollars a day to the federal government in the form of royalties and bonuses paid as lease sales and taxes.
8This is a massive volume of money by any yardstick.
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The LPG customer base in India is growing at an average of around 10% a year in 2015.
8The growth rate of domestic customers is 10.2% and that of commercial customers is also 10.2%.
8The serious attempt to curb illegal diversion of domestic LPG to commercial use through the direct benefit transfer scheme has not had any impact on the growth rate of commercial customers.
8The commercial customer base grew at 9.4% in 2014 and rate has moved up secularly to 10.2% just as the non-commercial base has gone up an exact 9.4% to 10.2% as well.
8This could well mean that diversion is still rampant in the commercial sector and the claims that the practice has been curtailed are not correct.
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Auto LPG is a commercially viable proposition in India but nevertheless growth of this segment has been very slow
8Analysis of the data shows that the growth of the auto LPG dispensing stations have been stagnant over the last four years.
8The segment has grown at 2.3%, 1.6% and 0.4% in 2012, 2013 and 2014 before registering a negative growth in 2015.
8The number if stations at the end of 2015 stood at just 679.
8The low number of stations also means that the spread of auto LPG is limited by the lack of dispensing stations.
8Unless the number of stations grow, its usage cannot be popularized.
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The LPG customer base grew at a healthy pace of 10% a year but even if this growth rate is sustained , it will not be enough to cover all of India's population for many years to come.
8A survey of LPG usage which was recently released by none other than power minister Piyush Goel, has established that 800 million people in India  have no access to LPG and they continue to use firewood, dung cakes, charcoal or crop residue to meet their cooking energy needs. 
8Clearly India has a long way to go.
8The official figures (derived mostly from data provided by the public sector oil marketing companies) are heavily fudged too, the survey has established.
8The survey done along scientific lines concluded that in the most backward parts of the country, covering UP, Bihar, Jharkhand, Odisha, West Bengal and Madhya Pradesh, only 14 per cent households in rural areas across the six states have stated  that Biogas, LPG, Electricity or Natural Gas as their primary source of cooking. 
8In sharp contrast, the households in these states that are reported by oil marketing companies to have LPG connections ranges from 26 per cent in Jharkhand and Odisha to more than 50 per cent in Uttar Pradesh. 
 8Either the survey is wrong or the oil companies have trumped up the data. The divergence is too wide and a better investigation of the data has now become a prerequisite to establish the impact of LPG access and subsidy on India's poor.
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The survey has also gone on to show that more than three quarters of the rural households rely totally on traditional biomass for cooking.
8But the problem is that these rural poor would rather stick their traditional modes of cooking than opt for LPG.
8The high upfront cost to secure an LPG connection is cited as the biggest hurdle (for 95 per cent of households) to adopting LPG.
8Furthermore, the high recurring monthly expenditure (88 per cent), and lack of distributors for the fuel in the local area (72 per cent) were also stated to be significant impediments to LPG adoption. 
8Moreover, there is poor awareness about adverse health impacts of the use of traditional chulhas. 
8Nearly 45 per cent of households without an LPG connection are unaware of the positive health benefits of using LPG over traditional chulha.
8Such poor levels of awareness of the impact of cooking fuels on health, could also be a reason for the low demand and adoption of the clean fuel.
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Corruption in the delivery of services such as PDS SKO or LPG is another revelation of the survey.
8A vast majority of rural population believes that public delivery systems are steeped in inefficiency and corruption.
8Since kerosene is subsidized, people may find it profitable to resell it at a higher cost to people who need more than their quota. 
8Similarly reselling of subsidised LPG cylinders is also rampant in rural areas.
8West Bengal has the highest self-reported rate of reselling of 48.9 per cent. These cylinders are of course sold at a premium because accessibility to legitimate LPG is  limited or denied to many households. 
8These findings will strengthen the argument that direct transfer of subsidies will be able to bring down the incidence of corruption in the delivery of LPG and SKO.
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For reference purposes, the website carries here the following LPG related data updated up to December, 2015.
8Year-wise number of LPG customers divided into commercial and non-commercial users
8Year-wise DBC customers
8LPG distributors distributed into rural and urban segments
8Year wise growth in Auto LPG Stations
8Total year-wise growth of LPG usage in India
8State wise location of bottling plants and their bottling capacity
8State-wise distribution of LPG distributors, divided according to urban-rural segments
8State-wise sale of packed domestic LPG
8State-wise distribution of auto LPG stations
8State-wise LPG customer base, domestic and non-domestic
8State-wise new enrollment data
8Total DBC customer base distributed state-wise
8State-wise LPG waiting list as on October, 2015
8State wise number of Below Poverty Line customers covered under various government schemes
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With oil prices plummeting, the Indian E&P industry has stepped up its demand for a better playing field from the government.
 Clarification sought on what constitutes "mineral oil"
 8The industry continues to seek clarification over the definition of mineral oil, and even though this has been clarified, E&P operators are still looking for a elaboration of the term "mineral oil" under various statutes of the government.
 8The NELP NIO (prior to NELP VIII) do provide for a seven year tax holiday for both crude and gas. What is more CBM NIOs do provide for a seven year holiday even though CBM is nothign but gas.
 8But in the recent past the subject matter is under different interpretation and this is reportedly in deviation from the correct legal and intended positon.
 8So a clarification is again being sought on whether the term "mineral oil" includes petroleum and natural gas from the point of view of Section 80 IB (9) of the Income Tax Act.
 What constitutes the definition of an "undertaking"?
 8There is also some consternation over the definition of an "undertaking" in sub section (9) of section 80-IB.
 8As per cited explanation, for the purpose of claiming deduction under this sub section, all blocks licensed under a single contract or PSC will be treated as a single "undertaking" with retrospective effect from April, 2000.
 8This trend of imposing policy in terms of taxes and taking away benefits is not in the right spirit, feels the E&P industry
 Click on Details for more Details
Given the sharp fall in oil prices and the worrisome state of the Indian E&P industry, there is a demand for more sops from the government this time.
 8There is now a plea for the tax holiday benefit to be extended from 7 years to 15 years.
 8If that is not possible for a period of at least 10 consecutive years within a period of 15 years from the year of commercial production.
 8This, the industry feels, will provide a much needed boost to oil and gas exploration in India.
 8Then again, E&P companies want the ceiling of 20% of profits that can be deposited in the Site Restoration Fund under Section 33ABA removed.
 8The demand is for the ceiling to be either removed or increased to 50%.
 8What is more, the pitch is for the operator to be allowed to maintain the fund in dollars, in addition to rupees, so as to be able to avoid currency fluctuation risks. Details
There is also a demand for oil and exploration companies to be exempted from the the Minimum Alternate Tax.
 8This is because the benefit of a 7-year tax holiday is virtually nullified due to MAT provisions.
 8The companies normally earn higher book profits in the initial years and during the tax holiday period, but they are required to pay MAT on book profit once commercial production commences.
 Infrastructure status?
 8The demand for infrastructure status for the oil and gas industry has been an old demand.
 8There are many advantages to infrastructure projects not available to oil and gas companies, such as take-out finance through ECBs, relaxed provisioning norms for infrastructure lending, eligibility for Viability Gap Access to raise funds through Infrastructure Debt Funds or tax free infrastructure bonds.
 8Then again, to smoothen out the creases, there is a demand for a threshold limit of say $25,000 to $50,000 for small NRI vendors so that they are exempted from furnishing a PAN for the purpose of applicability of Section 206 AA, which prescribes a higher rate of withholding tax in absence of a PAN.
 8There is also the need for a clarification, the industry is of the view, whether for the purpose of depreciation as per the IT Act, an oil well can to be considered as "Plant & Machinery" and not as a building, etc.
 8Offshore platforms are treated as buildings by the tax office because accommodation is given to personnel and a clarification is needed on this count. Details
There is also a strong demand to drop the imposition of safeguard duty on import of oil and gas equipment for the oil and gas sector.
 8It is to be noted that the customs department had notified that basic customs duty and CVD will be nil if goods are imported for "petroleum operations" but nevertheless safeguard duties are imposed on items such as seamless pipes and tubings to protect the domestic industry.
 8The argument is that the PSC provides a sovereign guarantee that there will be no levy of customs duty on import of goods for petroleum operations.
 8Then again, machine parts and raw materials for manufacture of goods supplied for offshore oil and gas operations are exempt from the levy of customs duty.
 8The same benefit is now sought for the onshore oil exploration activities so as to provide a level playing field.
 8Additional duties imposed on HSD and LDO for running offshore supply vessels and rigs adversely impact the fund flow of E&P companies.
 8Since goods required for petroleum operations have been exempted from all customs and excise duties, the demand now is that additional duties levied on HSD and LDP should be done away with for the E&P industry. Details
This is a demand that is made routinely with the hope that the government may give in one day.
 8There is an argument that the application of cess is distortionary in nature and hence should be abolished.
 8Then again, the argument goes, imposition of cess on any industry is always meant to be temporary, to address concerns that are immediate and by this logic the levey should be withdrawn when the circumstances no longer exist with the passing of time, or when the concept outlives its utility.
 8There is now a strident demand that the amount collected as cess be transferred to the OIDB for use in the development of the oil and gas industry and to strengthen the DGH or provide fiscal support to develop an indigenous oil and gas services industry.
 8There is also a pitch for use of cess be restricted to the upstream sector only as the tax is collected from them.
 8The purpose of levying a cess in the first place on the industry was to create an OISD Fund which will be utilized exclusively to provide financial assistance to the organizations engaged in the development programmes of the oil industry.
 8Given the abysmally low price of oil and gas, the E&P industry is struggling to survive.
 8Under these circumstances, it is only fair, the industry has argued, for the government to provide much needed relief by withdrawing cess on the sector. Details
Another outstanding demand that is unlikely to be fulfilled is the exemption to oil and gas services from service tax.
 8Since exemptions are provided for goods procured for E&P activity, a similar benefit must be given to oil field services, both domestic and foreign, the argument goes.
 8Moreover, the service tax paid for services availed for E&P blocks that are unviable or are surrendered is not fair, it is claimed.
 Among the demands made are:
 8Zero rate the services provided by various input service providers, or include such services in the negative list.
 8Introduction of suitable provisions in the foreign trade policy for availing deemed export benefit with respect to service tax.
 8Or else introduce a scheme for refund of service tax.
 Common costs
 8The industry claims that the common costs  apportioned by an operator -- which is a consequence to a contractual obligation to carry out petroleum operations under the PSC -- qualifies as a transaction without any element of service and therefore should not attract a service tax. Details
The Modi government is keen to promote the use of gas in India.
 8Will it now include natural gas in the list of "declared goods" as provided under Section 14 of the Central Sales Tax Act to maintain parity with other fuels such as crude oil, coal, LPG and ATF?
 8This declaration will bring down the excise duty element significantly and this will help spur a significant improvement in demand.
 8This is a long standing demand of the Indian gas industry.
 8Will the government give in demand? Possibly not, as states derive a significant amount of revenue out of sale of gas.
 Local vendors should not be taxed
 8While goods imported for petroleum operations are exempted from customs duty, similar goods procured indigenously from a local vendor are subject to sales tax on  inter-state sales transactions.
 8Since this is the kind of levy that makes the local industry uncompetitive while incentivising the foreign player, the government should issue a notification granting exemption for local goods for petroleum operations under Central Sales Tax law. Details
There has been a lot of brouhaha over the discovery of massive reserves of gas hydrates off the Indian coast.
 8A preliminary estimate puts the quantum at a massive 933 TCF.
 8But are these reserves likely to be tapped anytime soon?
 8The answer is "no", for the technology is still at a nascent state and with current level of expertise, the cost of getting gas hydrates out will be very expensive indeed.
 8Nevertheless, the consensus is that when commercial use happens, it will be as much of a disruption as shale oil and gas has been.
 8Gas hydrates represent an enormous recoverable resource at least of the order of shale gas. 
 8Gas hydrate resources are global and what is more Asian economies such as India that are heavily dependent on imported energy are making gas hydrate recovery a strategic imperative. 
 8But the pick up will be slow. A BP estimate shows that by 2050 gas hydrate recovery may account for 5% of all global gas production, if public and private sector initiatives develop safe and cost-effective extraction technologies based on depressurization, thermal stimulation and chemical or gas injection.
 8This is indeed a slow start.
 India will be in a good position to tap gas hydrates because they are found in abundance and the country has been the forefront of gas hydrate research.
 8But the revolution is not happening anytime soon.
 Click on Reports for more Details
An independent assessment has placed the FOB price of 7.5 MMT of LNG bought from RasGas by Petronet Ltd Ltd at $6.5-7/mmbtu as against an estimate of $7.5 estimated by this website.
 8The FOB price of 7.5 MMT LNG would now be linked to recent 3-month average price of Brent crude oil, without any floor and cap, as opposed to the earlier price, which was linked to 12-month average price of JCC subject to floor and cap linked to a 60-month average of JCC.
 8Although the slope of the price formula would continue to be 12.67% of crude oil, an additional constant of US$ 0.6 /mmbtu has been added in the revised formula, according to the independent estimate, which would add about $ 200 million to the gas costs per annum.
 8With the prevailing crude oil prices, FOB price of RasGas LNG is estimated to be US$ 6.5-7 /mmbtu from January 1, 2016, as against the earlier price of US$ ~12.5 /mmbtu based on earlier formula. Although the terms of the agreement for additional 1 MMT are learnt to be slightly different from the existing contact, the price of additional 1 MMT is expected to be at similar levels as that for existing 7.5 MMT.
 8The revision in FOB prices would lead to corresponding fall in “landed price” for consumers which are expected to decrease by ~35% to US$ 9.5-10 /mmbtu from US$ 15.5 /mmbtu.
 8The revised RasGas LNG prices are comparable with current spot LNG prices and hence would be positive  for consumers having long-term contracts with offtakers and could lead to restoring the full committed volumes for offtakers in CY2016.
 8The price revision could lead to marginal improvement in marketing margins which have been negative in some quarters (due to inventory loss on high priced RasGas LNG).
 Liquid fuels however will continue to pose competition, albeit to a lesser degree compared to the earlier scenario, in certain segments due to an equally significant fall in liquid fuel prices.
 Click on Reports for more Details
There will be a fall in subsidy receivables for the fertilizer industry subsequent to the revision in price of LNG supplied by RasGas
 8The gas requirement in the industry stands at 41.35 mmscmd for production upto Reassessed Capacity while it stands at 50.47 mmscmd based on ‘Maximum Achievable Capacity’. Out of the above requirement, about ~27 mmsmcd is being supplied through domestic sources, while the rest is through imported R-LNG.
 8Although, domestic gas priced at US$ 4.24 /mmbtu constitutes around 65-70% of the overall gas demand of the industry, the pooled price has been significantly higher at ~ US$ 9.1-9.2/mmbtu in recent months (pooled gas prices were US$ 9.8-10/ mmbtu in June-July 2015) due to high R-LNG cost which is due to the fact that some of the players have entered into contracts for long-term RLNG, the prices of which were significantly higher than the spot gas and would have fallen only with a lag.
 8With the lowering of the long term R-LNG price, the pooled gas prices for the urea sector will reduce by ~US$ 1.2-1.3/ mmbtu, according to the independent assessment.
 8As a result, the pooled gas prices would come down to US$ 7.9-8/ mmbtu in Q4 FY 16 from US$ 9.1-9.2/ mmbtu in recent months, leading to reduction in the variable cost for production of urea by Rs. 2400-2500/ MT, leading to reduction in subsidy outgo by Rs. 4800 to Rs 5000 crore for a year.
 8For a fall of every US$ 1/ mmbtu in gas price, the variable cost reduces by Rs. 1800-2000/ MT, i.e. subsidy savings of ~Rs. 4200 crore for the received gas supply of 41.91 mmscmd, including  domestic gas and R-LNG.
 Click on Reports for more Details
For production beyond cut-off quantity for urea units, lower pooled gas prices would favourably impact the profitability of revamped urea capacities earning IPP-based pricing.
 8As per the NUP-2015, units producing more than its re-assessed capacity are entitled to get their respective variable cost and ~Rs. 2,300/MT (which is the uniform per tonne incentive equal to the lowest of the per tonne fixed costs of all domestic urea units under the modified NPS-III). However, this realization is subject to a cap of the import parity price plus weighted average of other incidental charges (transportation and handling charges, etc.), which the government incurs on imported urea on its own account (~US$ 25/MT).
 8Effectively, the government is encouraging domestic manufacture of urea until the time its subsidy outflow does not exceed its opportunity cost of import of urea.
 8The urea IPP prices have remained subdued in recent months with prices currently hovering around US$ 250-260/ MT (FOB). If the urea prices were to drop further, the players’ contribution margins would reduce from the current levels of ~Rs. 2300/ MT. Lower pooled prices would reduce the variable cost and effectively reduce the downside risk of lower contribution margin for the production beyond cut-off quantity.
 8Hence, with lower pooled gas prices, the energy efficient plants should be able to achieve the fixed contribution margins while the downside risk arising from lower urea IPP prices would be reduced for less energy efficient players.
 Click on Reports for more Details
The profitability of some of the players (such as Deepak Fertilisers & Petrochemicals Ltd., Gujarat Narmada Valley Fertilizers & Chemicals Ltd., Gujarat State Fertilizers Corporation Ltd. and Rashtriya Chemicals & Fertilizers Ltd.), which manufacture certain non-urea fertilizers under NBS such as ammonium nitro-phosphate, would also be favourably impacted, to the extent these players use a certain proportion of long-term R-LNG in their overall gas consumption mix.
 8Additionally, chemicals manufactured by these integrated fertilizer-chemicals complexes may also witness improvement in profitability as cost of production will decrease.
 8Overall, the revision in the agreement, is a positive for the fertilizer sector as it benefits the
 -- The government due to lower subsidy requirement
 -- Urea Players due to reduction in the working capital requirement and favourable impact on profitability from revamped urea capacities earning IPP-based pricing.
 -- Non-urea and chemical players due to lower gas cost
 Click on Reports for more Details
Even though existing operational gas based projects should benefit from an increase in their utilisation to some extent with improved cost competitiveness of R-LNG, the outlook for these units continue to remain poor.
 8The sale of power by gas based units remain dependent upon the ability of the discoms to procure such R-LNG based power which is still costlier in the merit order matrix, given the improved energy availability on all India basis from other fuel sources and the fact that energy demand growth from industrial segment has been subdued.
 8With deterioration in domestic gas availability since March 2011 and alternate fuel (R-LNG) being not cost competitive against other thermal sources, average PLF for gas based capacity on all India basis in FY 2014-15 declined sharply to 20.8% as against 66.2% in FY 2010-11.
 8Gas based PLF on all India level has marginally improved to 22.1% during 8 month period (till Nov) of FY 2016, with implementation of scheme for utilization of stranded gas based projects using subsidy support.
 8While arrangements to supply R-LNG are in place for such capacity, the belief is that the current scheme is not sustainable for the stranded projects at the prevailing exchange rate (66 INR/US$) and spot R-LNG price level (US$ 7/mmbtu), even assuming a financial relief in the form of a moratorium on debt servicing.
 8Thus, fuel risk remains high for gas based projects and the viability of stranded gas based projects (15 GW) remains critically dependent on an improvement in domestic gas availability.
 Click on Reports for more Details
The fall in price of LNG supplied by RasGas is a positive development for the City Gas Distribution (CGD) business but piped gas for industrial customers would still continue to be at a disadvantage as compared to industrial fuels even if the entire reduction in cost is passed on to consumers by the CGD companies.
 8Lower prevailing prices of Naphtha, Furnace oil and LDO have resulted in pressure on industrial volumes and these have witnessed declines for all CGD players in the last two years.
 8Addition of new gas buyers has been limited, while several existing consumers whose operations have the flexibility to use various fuels (as opposed to players like Ceramics, Mineral processing, etc. where gas cannot be replaced completely by other fuels as an energy source) have either shifted to coal or industrial fuels or plan to make the shift especially under the current benign price regime.
 8After the likely reduction in industrial gas prices, the gap reduces but gas could still be at a disadvantage to liquid fuels on energy basis, especially against FO.
 8Nevertheless, there are qualitative advantages of PNG usage like lower pollution, transportation and inventory management hassles which can offset the remaining disadvantage to some extent, due to which consumers may still prefer gas over liquid fuels.
 8Further, it is to be noted that at largely stable level of crude oil prices, RasGas LNG based supply of industrial gas should be cheaper than naphtha. However, in current declining crude oil price scenario, naphtha prices have declined at a faster pace being linked to last fortnight or month crude price, whereas industrial gas supply would be based on LNG price which is linked with 3-month average crude oil price.
 Click on Reports for more Details
The L&T McDormott contract will involve the following elements:
8Complete Engineering, Procurement, Construction and Installation of major subsea facilities
 The full scope of the contract includes:
8Supply and installation of subsea structures at seabed in water depths ranging from 200 metres to 700 metres
8Laying of subsea pipelines interconnecting subsea wells to ONGC’s onshore facilities at Odalarevu in Andhra Pradesh.
8Upon final commissioning, the facilities will add about 4.55 MMSCM of gas
8The consortium developed a cost-effective solution which included utilization of L&T's strategically located Kattupalli facility in Chennai for fabrication and setting up of a local spoolbase in India.
8McDermott in turn will use a cost effective combination of reel lay and S lay methods for laying of subsea pipelines
 Click on Reports for more Details
The salient features of the proposed development scheme includes:
8Drilling and completion of two development wells in Vashishta field
8Re-entry and completion of one S-1 exploratory well (depth approximately 2500 -2700 metres)
8Relocation, drilling and completion of a second well in the S-1 field (depth approximately 2500 -2700 metres)
8Sub-sea tieback of the four wells to shore with 14-inch dual pipeline through a daisy chain architecture, with suitable sub-sea facilities, including subsea control units and umbilicals
8Setting up of a dedicated onshore terminal at Odalarevu to handle Vashishta and S-1 well fluids.
Click on Reports for more information Details
On a day when the price of oil has come below the $30/bbl mark and gas prices are on the slide, ONGC has announced the award of a Rs 2450 contract for the sub-sea development work for the Vashishta and S1 deepwater gas fields situated off the East Coast of India to a combine of L&T and McDermott.
8At these prices, a deepwater gas development will most possibly provide a negative return but ONGC has gone ahead with the award because it has already contracted some parts of the work -- including the building of the Odalarevu onshore terminal -- to other contractors.
8Sources were tightlipped about the cost economics of the project but the possibility is that they are in negative territory.
8An earlier estimate by ONGC had projected a IRR of around 17.5% and an NPV of Rs 500 crore at a discount factor of 14% per annum on a gas price of $5.80/mmbtu from 2015-16, going up to $6.80/mmbtu from 2020-21.
8The cost of the project was pegged at $750 million.
8The cost economics may have turned unviable because the current cost of gas is $4.2/mmbtu and the dollar has appreciated significantly against the Rupee. The project has been delayed too.
8On the positive side, the cost of facilities has come down on account of a sharp fall in the price of equipment and services.
8This contract pertained to subsea work, and was given out for Rs 2450 crore
8L&T's share in the consortium is Rs 640 crore while the rest goes to McDermott.
Click on Reports for more Details
It was impossible to envisage a day when crude price would tumble to below $30/bbl, the lowest level in 12 years as turmoil in Chinese markets deepened the global commodities  rout.
8The daily basket price of crudes produced by the 13 members of the Organization of Petroleum Exporting Countries fell to $29.71 a barrel on Wednesday, down from $31.21 the previous day
8That’s the lowest level since February 2004.
8Will the price come down further? To $20/bbl or even $15/bbl?
8There is a real possibility of that happening too.
8The rout is lead not just by the oversupply of around one million barrels per day but also by demand compression resulting from the turmoil in China and slowing growth across the world.
8The rapid march of renewables and other disruptive fossil-fuel replacing technologies may lead to depressed demand for crude in the foreseeable future but at the same time, the supply glut will not be able to sustain itself at these prices.
8Eventually the production of crude will slow down and prices will begin to climb.
8No one however can predict when this will happen.
Click on Reports for more Details
RIL's rejection of the decision by the government to that a one-member Justice AP Shah Committee should decide on the D&M report shows the Mukesh Ambani led company as unafraid to take on the government when its interests are at stake.
 8Narender Modi runs a majoritarian regime that usually does not take rejections of its decisions too kindly.
 8But Ambani is a seasoned businessman and a doughty figure, traits that he has inherited from his father, when it comes to defending his own interest.
 8At stake is a demand for over Rs 10,000 crore as penalty for siphoning of gas and it is only expected that Ambani wil deploy all possible ways to avoid paying up.
 8In today's India, the corporate sector chooses to stay mum rather than take up cudgels with the government but RIL is made of different material. It has an immense capacity to take risk and it has the muscle power and confidence to withstand a squeeze from New Delhi should that happen.
 Click on Details for more Details
Prime Minister Narendra Modi and petroleum minister Dharmendra Pradhan along with PLL MD Prabhat Singh have pulled off a coup by coaxing Qatar to cut the price of 7.5 MMTPA of long term LNG contract after protracted negotiations.
 8The deal will see the price of LNG drop by $5/mmbtu from $12.5/mmbtu in December, 2015. The price will be around $7.5/mmbtu or less in India. This was done by changing the price formula from five-year average of crude oil prices to a three-month average, and the waiving of the penalty for LNG not taken which could have been as much as $1 billion.
 8The deal has send the global LNG market into a tizzy.
 8Prabhat Singh is an experienced hand in this game and he seems to have been fully backed by Pradhan to push the Qataris into a corner and force them to come up with a concession.
 8There was seamless coordination between Singh, Pradhan and Modi, all of whom worked in concert to land India a good deal.
 8Negotiations were done skillfully by the Indian side - Singh had 22 meetings to arrive at a deal, followed my meetings by Pradhan and Modi himself with their Qatari counterparts -- but Qatar too had its strategic calculations in mind while bowing to Indian pressure
 8At one stroke, it ensured retention of its monopoly in the Indian market with long term contracts worth 8.5 MMTPA of gas (a deal was struck for an additional 1 MMTPA of LNG as well).
 8Not just that, Qatar has dealt a body blow to a spate of LNG projects that are now coming on stream across the globe by setting a low floor price for long term contracts with India.
 8Qatar is doing to the LNG market what Saudi Arabia had done to the crude oil market.
 8The idea seems to be to retain market share and keep the price low enough for competitors to find it difficult to break even.
 8For those new projects which had an eye on the Indian market, they will will now find it near-impossible to match Qatar's price in India.
 Click on Details for more Details
 ONGC plans to drill one more exploratory well-- dubbed as PADAL-- in the Panidihing PML area in district Sivasagar,Assam.
 8This area is a prolific oil and gas producer from the Pre-Barail Tura and Sylhet formations.
 8In the Panidihing area, ONGC has a PML grant for a 20.65 square kilometer area with validity upto May, .2024.
 8The exploratory well has been planned to be drilled with the objective of exploring further the Pre-Barail Tura and Sylhet formations and basement.
 8The estimated cost is around Rs. 58.50 crores, and about 1.45 MMt of Initially Inplace hydrocarbons are envisaged from this project
 8Around 1.96 hectares of land is required for the drill-site.
 Click on our Reports section for more. Details
PLL had signed a deal with Exxon-Mobil for 1.44 MMTPA of LNG from its Gorgon venture in Australia.
 8Like with the deal with Qatar, this one too is purely linked to the Japanese Custom -cleared Crude (JCC) price.
 8But the price is a straight forward linear relationship with JCC price without a floor and a ceiling.
 8This of course pushed the potential price of Gorgon cargoes higher when the price of crude was higher.
 8But now that crude prices have gone down, the formula will allow for a competitive price.
 8What is more, just like with Qatar, the FOB price builds in the liquefaction cost.
 8The only element that is going to be expensive is the shipping cost which is more than twice the cost from Qatar to India.
 8This may make the Gorgon price around $0.50-$1/mmbtu higher than the Qatari price.
 8The Gorgon FOB price at around $40/bbl is $5.80/mmbtu and it remains a moot point whether Petronet's boss, Prabhat Singh, however agile a negotiator he may be, will be able to whittle it down much further.
 Click on Details for more Details
Qatar may in fact have killed the competition entirely with its pricing strategy in India. This may eventually result in India sourcing more LNG from Qatar or countries in the Gulf than anywhere else.
 8Breakeven ex-ship price to Asia is going to be significantly higher for terminals based out of other gas rich countries, according to independent estimates, than that from Sabine Pass of the US.
 8Data shows that the ex-ship Asia break-even price for West Africa is between $9.5 to $11.5 from West Africa., $12-13 from Western Canada, $14-16 for Northwest Australia and $14-17 for East Africa.
 8Clearly, PLL seems to have extracted a good price from Gorgon for 1.44 MMTPA of LNG, as Gorgon's breakeven price is far higher.
 8The Sabine Pass calculations are based on a Henry Hub price of $3/mmbtu.
 8If the price is lower, say $2.30/mmbtu, even then the GAIL sale price in India will be higher than the Qatari benchmark.
 8The loss however will not devolve on Sabine Pass -- but will be directly on offtakers such as GAIL which had entered into take or pay arrangements with the US terminal.
 8At an LNG sale price of $9/mmbtu in Asia, the implied margin for the Sabine Pass terminal operator will be a healthy $3.25/mmbtu but this is not a margin that the terminal operator will part with GAIL.
 Click on Details for more  Details
So what exactly is the pricing formula that was agreed upon between PLL and RasGas of Qatar?
 8Everyone is tightlipped about it, but sources said that there has been some tinkering with the original formula by revising the floor and ceiling prices in the pricing formula.
 8Gas from Qatar remains fully linked to the Japanese Custom-cleared Crude (JCC) price.
 8Sources said that the basic formula is the same as the earlier one
 8The FOB price formula is Po* JCCt/$15
Where
--Po was $1.99/mmbtu
--And where JCCt is the 12 month average of Japanese Custom Cleared Price and "t" is the month for which it is calculated.
--The difference is in the calculation of the floor and cap prices, where
--Cap was earlier {(60-N)*20 + (N*A60)} +4
--he Floor was {(60-N)*20 + (N*A60)} - 4
--A60 here is the 60 month's average price, and this has been whittled down to three months
Click on Details for more Details
The financial viability of the Gorgon project in Australia, partly promoted by Exxon Mobil, which incidentally also has a stake in RasGas in Qatar, continues to remain in doubt.
 8The project is based on a series of deep-water gas-fields which are linked by submarine pipeline to liquefaction facilities on Barrow Island off Australia’s north-west coast.
 8Cost escalations and completion delays have already eroded the potential profits of Gorgon.
 8Clearly, the FOB price generated by long term contracts, like the one with PLL, does not pay for development of the deepwater fields along with the cost of the liquefaction facilities.
 8And after tasting victory with RasGas, it is quite likely that India might actually push for a further lowering of the price, which the project promoters will be unwilling to provide.
 Click on Details Details
There will be many who would think that India extracted a great price for gas from Qatar but will it be the Quataris who will have the last laugh?
 8There is a now a possibility that GAIL will not be able to sell its US cargoes in India at the price at which RasGas will be delivering its LNG to Petronet LNG Ltd.
 8GAIL has two contracts in the US: One for 3.5 MMTPA with Sabine Pass terminal and the other for 2.3 MMTPA from the Cove Point terminal.
 8With Sabine Pass for example, GAIL has a 20-year deal. And the deal is that GAIL will pay a fixed cost of $3/mmbtu and an LNG cost pegged at 115% of the Henry Hub price>
 8The ex-ship break-even cost for LNG in Asia has been pegged by the promoters of Sabine Pass at $7.7-8.4/mmbtu.
8The delivered cost then is going to be significantly more expensive compared to LNG contracted from Qatar while being at par or higher that Gorgon of Australia.
 8This is a significantly development and may have far reaching repercussions for the public sector gas giant.
 8The gas that GAIL is meant to bring to India -- and the expensive LNG carriers that it is buying to transport the gas to India --  may never come here at all because that gas may simply turn out to be more expensive.
Click on Details for more Details
GAIL has a massive exposure in the US LNG terminals but does it have to stomach to take a hit if the weather turns rough?
 8In the Sabine Pass terminal itself, GAIL will pay a massive $584 million per year as fixed annual fees to buy 182,500,000 mmbtu of LNG.
 8This is over and above the price of gas.
 8A proportionate amount will have to be shelled out for the Cove point terminal where it has contracted to offtake 2.3 MMTPA of LNG.
 8This is over and above the burden of owning a dozen LNG carriers to ferry the gas from the US to India.
 8But what if, as is likely now, the tide turns in such a way that US LNG gets priced out of the Indian market by sellers from the Gulf?
 8Already, if the term LNG price set by Qatar is lower than the breakeven price from the US, spot LNG prices, in a buyers market, can only be set lower not higher, and that will kill GAIL's market for US LNG in India?
 8At no price point will GAIL's US cargoes be able to elicit buyers in India.
 8So where will GAIL go with here onwards with such vast quantities of LNG -- and a large number of new and expensive LNG carriers --  at its disposal.
 8GAIL will have to fight to sell its gas along with others, who are perhaps better prepared than the Indian gas major in the global arena.
 8Given that it is going to be a free-for-all in the LNG market, does GAIL have to marketing and risk taking capacity to take on the likes of Shell, Exxon Mobil, ENI and BG for market share around the globe?
 8Is it likely to be a fight to the finish for GAIL?
 Click on Details for more Details
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