India's GAIL signs first time-swap deal for US LNG with Gunvor

NEW DELHI (Reuters) -- State-run gas company GAIL (India) Ltd has signed a time-swap deal with Swiss trader Gunvor to sell some of its US LNG, sources said, as the Indian firm tries to ease the burden of its costly foreign LNG supplies.

Photo Courtesy of Gail India.

It is the first time-swap agreement by GAIL, which is trying to juggle its LNG portfolio to cut costs for price-sensitive Indian customers after a sharp fall in Asian spot prices made its US gas unattractive.

The deal equates to around 5% of India's 2015/16 LNG imports and will support a government push to promote use of the cleaner fuel in fertilizer and the power sector, even as India's local gas production is falling.

Gail's share price rose as much as 2.5% after the news on Friday in a falling Mumbai market.

"Their (GAIL's) exposure to US is quite big. It is one of the major overhangs for GAIL. Signing a deal with Gunvor is positive as every $1 hit in US LNG can potentially hit its revenue by $300 million," said Avishek Datta, an analyst at brokerage Prabhudas Lilladher.

Under the agreement, Gunvor will supply 15 cargoes or about 0.8 MMt of LNG to GAIL on India's west coast between April and December this year in oil-linked prices on a delivered basis in India, two sources with knowledge of the deal said.

In return GAIL will sell 10 cargoes or about 0.6 MMt next year from Sabine Pass on the US Gulf coast in 2018 at a premium to its pricing formula on a free-on-board (FOB) basis, they said.

The deal, priced at about a 12% slope to Brent, means GAIL could get gas from Gunvor at $6.50-$7.00 per MMbtu, the sources said, competitive with Asian spot prices and much cheaper than the cost of shipping its own US gas to India. "We are seeing spot deals (in India) for April deliveries getting finalized at slightly more than $6.50 MMbtu so GAIL's deal with Gunvor is at a very competitive rate," said an Asian LNG trader.

GAIL is saddled with long-term contracts to take expensive US gas after embarking on a buying spree between 2011 and 2013 when the fuel was scarce and prices kept rising.

LNG booked by GAIL under a long term deal with Cheniere Energy, which owns the Sabine Pass Liquefaction terminal, will cost 115% of Henry Hub prices plus a fixed cost of $3 per MMbtu. At current prices, this equates to a cost of about $8.50 per mBtu on a delivered basis to India.

GAIL was not immediately available for comment. Gunvor declined to comment.

The Indian firm has a deal to buy 3.5 MMtpy of LNG for 20 years from Cheniere Energy and has also booked capacity for another 2.3 MMtpy at Dominion Energy's Cove Point liquefaction plant.

It has so far sold about 0.5 MMt of its LNG from the US projects to Royal Dutch Shell, but has not been able to attract Indian customers despite repeated attempts.

"GAIL is in talks with more players to sell LNG from its US portfolio," said one of the sources.

New Delhi wants to lift the share of cleaner-burning gas in its energy mix to 15% in the next three years from about 6.5% at present.

GAIL is also in talks with Russia's Gazprom to delay and renegotiate a 20-year gas purchase deal undercut by low spot prices.

Reporting by Nidhi Verma; Additional reporting by Oleg Vukmanovic in MILAN; Editing by Richard Pullin

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