India’s GAIL signs 0.5 mil mt/year long-term LNG deal with ADNOC Gas

GAIL Ltd. has concluded a long-term deal to purchase around 0.5 million mt/year of LNG from the UAE’s ADNOC Gas, the Indian state-owned gas utility said in a statement, amid increasing energy demand in Asia's third biggest economy.

The agreement comes after GAIL signed a Memorandum of Understanding on Oct. 30, 2022, with Abu Dhabi National Oil Company (ADNOC) P.J.S.C to collaborate and explore opportunities, including the purchase of LNG for tenures ranging from short-term to medium and long-term.

GAIL’s latest long-term LNG procurement into India also comes on the heels of another long-term deal it struck earlier this month. On Jan. 5, GAIL announced the signing of an LNG deal with Vitol Asia for the supply of about 1 million mt/year of LNG into India for a period of 10 years starting 2026.

As part of its latest agreement, GAIL will also receive deliveries from ADNOC from 2026 onwards for 10 years across India, GAIL said Jan. 29.

This deal will not only help in meeting India’s rising energy security requirements but will also "fuel GAIL’s strategic growth objectives to cater to downstream customers in the rapidly evolving natural gas landscape of the country," the company said.

The term deal will "contribute to bridging the gap in India's demand and supply of natural gas and will open more avenues of strategic partnership between GAIL and ADNOC in other areas of the energy domain," GAIL (India) Limited Chairman and Managing Director Sandeep Kumar Gupta said.

The deal is only 0.5 million mt/year, just 2% of the overall imports expected by 2026, but even such deals with low volumes help the market safeguard itself from volatility in the spot market, Ayush Agarwal, an LNG analyst at S&P Global Commodity Insights, said Jan. 30.

"The LNG market is cyclical, and we anticipate the downcycle to commence soon with a new wave of liquefaction capacity expected to come online," Agarwal shared.

"However, the spot market is uncertain, given the recent geopolitical risks added to it, and there could be an upcycle after this decade. Therefore, a suitable mix of both term and spot contracts will help price-sensitive markets like India mitigate risk in the long-term," he added.

GAIL's moves to secure supplies is also in line with India’s ambition of enhancing the share of natural gas in the energy basket to 15% from the current levels of around 6%-7%.

In January, the company said it had signed a Term Sheet for GAIL’s equity participation in TruAlt’s joint venture company Leafinti Bioenergy Limited which owns and operates India’s second Compressed Bio Gas, or CBG, plant.

"The JV company will process over 600 million kgs of organic waste like agricultural residue, sugarcane press mud, spent wash (waste generated during ethanol production) and other decomposable waste per annum, to produce over 33 million kgs of CBG, nearly 20 million kgs of Solid Fermented Organic Manure (SFOM) and over 30 million kgs of Liquid Fermented Organic Manure (LFOM) per annum," it said in a statement Jan. 3, adding that the investment in the CBG JV would be around $72 million.

GAIL owns and operates a network of over 16,000 km of natural gas pipelines spread across the country and is also concurrently working on enhancing this further. It holds an approximate 70% market share in gas transmission and has a gas trading share of over 50% in India, according to the company.

The company also released its financial results for the third quarter ended Dec. 31, 2023 for the financial year 2023-2024.

"During the quarter the physical performance has improved across all major business verticals and petrochemical segment has turned profitable owing to plant efficiency, better capacity utilization & other optimization measures adopted," Gupta said in a separate statement Jan. 29.

Over October-December, or Q3 FY24, GAIL's average natural gas transmission volume stood at 121.54 MMSCMD compared with 120.31 MMSCMD in Q2 FY24, the company said.

Gas marketing volumes stood at 98.14 MMSCMD compared with 96.96 MMSCMD in the previous quarter, it noted.