GAIL faces delay in US LNG supply on storage tank leak

GAIL India Ltd is likely to see a delay in liquefied natural gas (LNG) shipments from the US as its supplier's storage tanks in that country have been shut down due to a massive leak.

US federal safety authorities have shut down storage tanks of Sabine Pass Liquefaction, with which GAIL has signed a 20-year sales and purchase agreement in December 2011 for the supply of 3.5 million tonne per annum of LNG.

However, Eben Burnham-Snyder, a spokesperson for Sabine Pass, a unit of Cheniere Energy Partners, said the cargo delivery to GAIL would not get affected.

Vandana Chanana, executive director, Gail, did not respond to calls and an email seeking comment.

LNG deliveries to India are to commence from next month.

In an order issued earlier this month, Pipeline and Hazardous Materials Safety Administration (PHMSA) under the US Department of Transportation, directed Sabine Pass to take corrective action with respect to affected LNG tanks that were found to be leaking late last month.

No injuries and fatalities were reported due to the incident. Also, PHMSA described the incident as "low-frequency, high-consequence" events.

A US-based consultant specialising in the sector said the development is expected to greatly affect the LNG delivery for GAIL.

"Just imagine with two of the tanks out of service, about 40% of the capacity will get affected. With the scheduled contract with GAIL set to begin in a month's time, it will surely cause delays," he said.

He also raised concerns over the due diligence process undertaken by GAIL before signing the deal in 2011.

However, Anoop Bhatia, vice-president and sector head (corporate ratings) at rating agency Icra, said, "I don't see any material impact on LNG supply to India because the purchase from the US at present forms a very small share of the pie. Besides, LNG is abundantly available and at a cheaper rate from other sources like the Middle East."

GAIL has signed contracts for sourcing up to 5.8 million tonne of LNG from the US as India is looking at raising the share of natural gas use to 15% of the total energy mix in the next few years from 6.5% at present. The LNG from the US turns out to be cheaper but the freight and other charges add to the cost, in comparison to it being sourced from the Middle East and other nearby countries. According to experts, as the LNG prices fell in the last few years, GAIL has been attempting to re-negotiate its deal signed earlier. Also, GAIL has got into swap deals with companies from Europe and other geographies while maintaining its main sourcing from the Middle East.

As per US's PHMSA, there are two berths and five LNG storage tanks at the Sabine Pass facility. Each tank has 3.4 billion cubic feet equivalent capacity (Bcfe) for LNG (total of 17 Bcfe). The facility has been used for import since 2008, and liquefaction for exports is being done since 2016. All five LNG storage tanks were designed by Mitsubishi Heavy Industries.

PHMSA claims that during the investigation it received from Sabine Pass Liquefaction a copy of a prior investigative report that it commissioned from Matrix and received in March 2017.

"That report documented 11 past upsets (dating from 2008-2016) on Tank S-103...," PMSA said. Further, the operator has indicated that it believes Tank S-101 has also been affected as both tanks are designed and operated in the same manner.

The Sabine Pass Liquefaction spokesperson said, "We make all required notifications to federal authorities."

GAS TROUBLE

• GAIL has signed contracts for sourcing up to 5.8 million tonne of LNG from the US as India is looking at raising the share of natural gas use to 15% of the total energy mix in the next few years from 6.5% at present
   
• The LNG from the US turns out to be cheaper but the freight and other charges add to the cost, in comparison to it being sourced from the Middle East and other nearby countries