State-run Shipping Corporation of India Ltd (SCI) has strengthened its liquefied natural gas (LNG) shipping business by winning a long-term shipping contract, its fourth, from Petronet LNG Ltd, in a deal worth over $200 million.
Shipping Corp is part of a Japanese consortium that has won a global tender to lease one LNG ship to Petronet LNG for hauling the fuel from Gorgon in Australia to Kochi in Kerala where Petronet has built a 5 million metric tones per annum (MMTPA) LNG re-gassification terminal. The Mumbai-based firm will hold at least a 26% stake in the venture.
“The Japanese consortium in which Shipping Corp is a partner, has emerged the successful bidder for the contract by quoting the lowest day rate for shipping the cargo from Australia,” said R K Garg, finance director at Petronet, India’s biggest importer of LNG.
Petronet plans to hire one LNG carrier for 19 years with a capacity to load as much as 174,000 cubic metre of LNG to transport the fuel to Kochi.
The board of Petronet approved the award of the contract to the Indo-Japanese consortium on Friday. “We will issue the letter of award to the consortium in the next few days,” Garg said.
Shipping Corp has bid for the tender along with Japanese firms Mitsui O S K Lines Ltd, NYK Line Ltd and K Line Ltd. This consortium already owns three LNG ships that have been leased to Petronet LNG Ltd to transport LNG from Qatar to its Dahej facility in Gujarat. Shipping Corp. is India’s biggest ocean carrier.
SCI holds a 29.08% stake each in two of these LNG shipping ventures and a 26% stake in the third LNG ship.
The equity stakes were acquired through a global tender issued by Petronet. The SCI consortium won a 25-year contract in 2002 for two ships by quoting the lowest day rates for shipping the cargo from Qatar, and a contract for the third vessel in 2006.
Teekay LNG Partners L.P. was the only other firm that had quoted for the Kochi tender.
Petronet, part-owned by Oil & Natural Gas Corp. Ltd, GAIL (India) Ltd, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd, has the option to take up to a 26% stake in the planned shipping venture for the Kochi terminal, Garg said.
Both Shipping Corp and Teekay said that it was yet to be informed about the outcome of the bid.
SCI is India’s only local ship owner with interests in the transportation of LNG, a business marked by long-term contracts stretching 25 years and stable revenue without any of the volatility associated with normal ship operations.
In June, GAIL (India) Ltd signed a co-operation agreement with SCI that include SCI assisting GAIL with the tender for hiring LNG ships and GAIL assigning step-in right to SCI in the ownership of LNG ships.
GAIL, India’s state-owned natural gas firm, has signed deals with two gas suppliers in the United States for importing 5.8 MMTPA of LNG for 20 years.
The agreements are on free-on-board basis whereby GAIL is required to make its own arrangements for the transportation of LNG from the US.
GAIL will require at least eight LNG ships to import the commodity from the US. The LNG shipments are expected to begin by mid-2017.
“GAIL will assign equity participation to SCI to the extent of 26% in the ownership of the LNG tankers through its step-in rights with the ship-owners to whom the time charter is awarded,” shipping minister G K Vasan said in September.
“Traditionally, LNG shipping contracts are for longer periods with stable revenues,” said a Mumbai-based executive at one of the world’s largest independent LNG ship owners. “Since the charter hire rate is decided at the beginning for longer periods, it provides revenue visibility for the fleet owners, making it easier to finance the ships,” the executive said, adding that an LNG ship costs about $200 million in the current market.