Shipping Corporation, GAIL in talks for LNG shipping venture

State-run Shipping Corporation of India and GAIL (India) Limited are in talks to form a partnership under which the gas utility will acquire nine LNG ships at an investment of $3 billion and the SCI will operate them.

Shipping Corporation, GAIL in talks for LNG shipping ventureSCI will have the option to pick up 25-per cent stake once a joint venture company is created out the proposed partnership and the respective ministries agree on further talks, reports quoted SCI director (liner and passenger services) Sarveen Narula as saying.

"We are trying to buy nine LNG ships, not through SCI but through GAIL. SCI will run those ships in partnership with GAIL. We are actively working with GAIL in selection of partners. We may have the right to take up to 25 per cent of the stake in that.

"The memorandum of understanding is being finalised. We are already in talks with them. Very soon it will be done. It is brokered through the government," PTI quoted Narula as saying.

SCI is also seeking permission to start an overseas subsidiary in Singapore for LNG shipping to India and is currently running four LNG ships through joint venture with Japanese partners among others, in which it holds 26 per cent stake.

"That is why we are tying up with GAIL. We will have the technical expertise. The funding will be though GAIL. So this becomes a new business for us. Each ship would cost around $300 to $350 million," Narula said when asked about the capital requirement for buying the vessels.

Narula was speaking on the sidelines of the flagging off ceremony of SCI's direct container services to Yangon from Krishnapatnam port container terminal on 3 October.

GAIL imported 25 LNG cargoes (equivalent to approximately 1.50 MMTPA of LNG) during the last financial year from various international sources on short-term as well as spot basis to meet immediate domestic gas requirement.

SCI currently has a MoU with GAIL for transporting LNG from the US to India in 2016-17 wherein it has step-in right up to 26 per cent.

According to SCI's 2013-14 annual report, India was the fifth largest importer of LNG in 2013, accounting for 5.5 per cent of the total trade.

GAIL's latest annual report puts the total Indian LNG imports required to meet the domestic supply gap was 10.79 BCM (29.56 MMSCMD) in 2008, which further rose to 17.8 BCM (48.8 MMSCMD) in 2013.

Domestic natural gas supply is expected to grow at 5.6 per cent over FY13-15, while gas demand is expected to grow at 18 per cent thereby leaving a huge supply shortfall.