GAIL in stake talks for Interoil's Papua LNG project

State-run gas utility GAIL India today said it was in talks with Interoil Corp for a possible stake in the Canadian oil firm's proposed Papua New Guinea LNG project.

 InterOil Corporation is developing an integrated oil and gas company in Papua New Guinea, and has has positioned itself to own assets through the entire value chain - from the well-head to retail. It also has a joint venture holding company to develop a LNG project in Papua New Guinea, and is targeting 2015 for the delivery of 'first gas'.

The Canadian company received initial approvals for its second LNG project in the Southwestern Pacific island country, last year. The plant would follow one proposed by an Exxon Mobil Corp-led venture.
 
The venture would involve an outlay of $5 billion for a plant producing 3.5 million tonnes a year of LNG, with shipments slated to commence in 2014.
 
Speaking at the PHD Chamber of Commerce and Industry in New Delhi, GAIL chairman B C Tripathi did not put a figure to what percentage of stake GAIL could get in the project. "I cannot say what stake GAIL can get. We are still talking to them on all these issues."
 
It is learnt that the Canadian company has asked GAIL for a 'resource payment' of $5.03 million in addition to equity contributions, which according to GAIL was too high.
 
China National Offshore Oil Corp, China's biggest offshore petroleum explorer, has already tied-up with Interoil on the project, though it is not clear whether it would take a stake in the project.
 
The Gas Authority of India (GAIL) plans to spend as much money as it has spent in the last 25 years on setting up a gas distribution infrastructure Tripathi said. He added that GAIL was currently in the process of putting up 5,000km of high capacity gas "highways", compared to the 10,700 km of trunk pipelines the country has today.
 
"The current demand in the country is around 230 to 240 million cubic metres per day and the total supply is around 170 million cubic metres," he said.
 
He said that around 40 per cent of the supply was from Reliance Industries' D6 block in the Krishna Godavari basin while the balance would be from state-owned and private projects.
 
 "We expect the demand to rise to around 300 million cubic metres per day in five years. We will spend $6-$7 billion (Rs28,000-33,000 crore) in the next five years on capital expansion," Tripathi added.
 
The gas scenario in India has undergone a revolutionary transition in the last year with the commencement of production from the D6 block.

The production capacity which stood at 100 million cubic metres a day (mmscmd) has shot up to 180 mmscmd but despite that Reliance has found it difficult to sell its gas for want of pipeline connectivity.
 
Tripathi, however said that the constraint was not pipeline capacity which was over 200mmscmd whereas as the production stood at 170 but the fact that the gas was not available for consumption for general industry as the government had barred the gas from being supplied to ordinary manufacturing industries such as ceramics and gas firms, which has forced RIL to cut production by 15-20 per cent.
 
Currently of the 170 million cubic metres of gas supplied every day, around 25 million comes from shipped LNG, primarily from GAIL and Petronet.

Domestic gas production is set to increase manifold over the next decade with only about 10 trillion cubic feet (tcf) of an estimated 100-200 tcf of gas off India's eastern seaboard having been tapped through D6. The other fields, including those with Reliance and others are expected to become operational over the next decade, supplying gas at around $5 per MMBtu.