GAIL stares at massive losses in its LNG business from 2018-19, Part-I: Gas major's US investments have turned very risky

A series of developments on the global oil and gas front have worked together to transform GAIL's investment in buying 5.8 MMTPA of LNG capacity in the US into the very risky category.

-- But when the decision to commit this capacity was taken it could well have seemed right.-- GAIL had thought it would deliver the LNG to India on the assumption that oil prices wouldl still rule at $100/bbl and the Indian market, dominated by oil-index pricing, would be a lucrative one for a prospective seller of LNG.-- The shale gas boom had caused US domestic Henry Hub (HH) prices to slump in the early part of this decade, so even accounting for liquefaction and transport costs, there were healthy profit margins if the wide price differentials between US and Asian natural gas persisted. -- In February 2013, US HH gas prices were at US$3.32/mmbtu, but the landed LNG price was $15.70/mmbtu in India. -- With Japan – the largest LNG importer -- shutting down its entire nuclear capacity following the Fukushima disaster, China and India constructing substantial LNG capacity, and Europe seeking to diversify from its dependence on Russia by building regasification capacity -- GAIL thought its LNG cargoes from the US would enter the Indian market at a very opportune moment. -- Nearly 50 LNG export proposals were submitted for US regulators' approval and GAIL got caught up in the enthusiasm, deciding to book 3.5 MMTPA of capacity with the Sabine Pass terminal and another 2.3 MMTPA from the Cove Point terminal by committing to pay nearly $ billion in fixed annual charges.

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GAIL stares at massive losses in its LNG business from 2018-19, Part-II: It took only a short time for the outlook to change dramatically

GAIL stares at massive losses in its LNG business from 2018-19, Part-III: GAIL may end up not covering its fixed costs