Indian shipbuilders are likely to construct four of the 14 liquefied natural gas (LNG) tankers needed by GAIL (India) Ltd to transport gas from the US beginning September 2017, in a move that would allow local companies to get started in a business that is dominated by South Korea, Japan and China.
The LNG ship hiring tender to be issued by the state-owned natural gas firm by the end of the month is worth $2.8 billion as LNG ships—specifically designed to carry LNG—currently cost about $200 million to build from scratch.
The decision to build four LNG tankers in India was taken at a meeting chaired by oil secretary Vivek Rae in Delhi on Thursday, at least three people who attended the meeting said. Local shipbuilders have welcomed the decision saying it will help them enter the highly specialized, sophisticated and lucrative LNG ship construction business.
“This is a historic opportunity. Once we get the technology to build LNG ships, we are in the game. Then, we can build more such ships for Indian gas importers, take-up export orders and also repairs, maintenance and dry-docking of such carriers,” said an executive at one of India’s private shipyards located in Gujarat who attended the Thursday meeting.
“No final decision has been taken,” said a top GAIL executive requesting anonymity.
“The technology to construct such carriers doesn’t exist in India. It will be an open tender wherein companies who have the wherewithal are open to participate,” a GAIL spokesperson said. “GAIL will comply with the instructions of the ministry.”
GAIL will not order the LNG ships directly at Indian yards.
In order to implement Thursday’s decision, GAIL may incorporate a condition in its tender that four of the 14 ships to be hired from shipowners and operators for 20 years, should be built at Indian yards.
The Indian yards that would build the four LNG ships would be finalized, including the cost, through negotiations between the ship owners and operators selected by GAIL through a public tender and shipbuilders such as L&T Shipbuilding Ltd, ABG Shipyard Ltd, Pipavav Defence and Offshore Engineering Co. Ltd and Cochin Shipyard Ltd.
Given the size of the tender, GAIL may split the 14 ship hiring tender among more than one ship owner and operator, the shipyard executive mentioned earlier said.
The ship owners/operators would be selected on the basis of the lowest day rates quoted by them for transporting 5.8 million metric tonnes per annum (mmtpa) of LNG from the US beginning September 2017 for 20 years. GAIL would hold a 10% stake in each of the ships. State-run Shipping Corp. of India Ltd, which is helping GAIL with the tender, will be given a step-in right to take at least a 26% stake in each of the tankers, he said.
Of the total LNG ships required, an initial set of six that are to be leased to GAIL by shipowners and operators would be built at overseas shipyards in order to meet the timeline of September 2017. Of the balance eight ships to be leased to GAIL beginning March 2018, four would be built in India.
“Nobody wants to jeopardize the shipping tender of GAIL,” said a second executive with one of India’s top private yards who attended the meeting.
“India needs gas. GAIL has a commercial contract with gas suppliers in the United States to start shipments from September 2017. If all the LNG ships are constructed at Indian yards and they are not delivered on time, everybody will face huge financial consequences,” he added, asking not to be named.
To overcome any potential delays by Indian yards in constructing the four ships, the GAIL tender may incorporate a condition that allows the ship owners and operators to hire four LNG ships from the market till the LNG ships are constructed by local yards.'
The LNG ships to be deployed by GAIL for hauling gas from the US will use a so-called membrane technology developed by Gaztransport et Technigaz, a French engineering firm.
Membrane technology is suited to large capacities and is easily fitted either through a retrofit of an existing ship or a new-build. It can be installed afloat in parallel to other on-going construction activities, thereby minimizing the building schedule, the second shipyard executive said.