GAIL Cancels "Make In India" LNG Carrier Tender

Cochin Shipyard (file image)

By MarEx 2016-11-04 20:04:52

Indian state-owned energy firm GAIL has canceled a build-and-operate tender for up to eleven LNG carriers, three of which would have been built in India. The announcement appears to bring the firm’s long-delayed bidding process to an end.

Sources told the Financial Express that while two Japanese consortia were interested in the contract, the tender's indigenous-shipbuilding provision prevented the deal from going forward. 

GAIL has already contracted for about six mtpa of LNG from American suppliers (Cheniere and Dominion). Cargoes are set to begin in 2017-2018. 

GAIL is now expected to look to the long-term charter market instead; the company may end up paying more for a charter than it would have last year, when it announced the tender as a keystone of Prime Minister Narendra Modi's "Make in India" campaign. 

Spot chartering rates were soft in 2015 and the first half of 2016, but have recently begun to recover. On Thursday, Dynagas fixed a 150,000 cubic meter carrier at a day rate of $47,000 for four years – much more than the average rates of $30,000 prevalent just six months ago, even when factoring in a premium for a long-term charter.

In addition to chartering vessels on the open market for transport from the U.S. to its own facilities, GAIL may elect to swap some its contracted gas with third parties. It has issued a solicitation for "counterparties who can take/purchase volumes from GAIL on FOB basis in US . . . and deliver equivalent volumes [to] re-gasification terminals located in India." This could allow savings on transportation costs by shifting the source of GAIL's LNG closer to Indian shores, while still meeting the firm’s contractual obligations with American LNG producers. 

The news of the tender's cancelation will come as a disappointment to Cochin Shipyard, a government-owned domestic shipbuilder that had invested in certification for installing GTT’s LNG containment systems.