Industry Odisha Bureau, Sep 12: GAIL Gas is blending differently priced gas to ease costs. Industrial customers face rising pressure from surging global LNG prices. The strategy also aims to sustain industrial demand.
GAIL Gas is using blended pricing for industrial customers. The strategy combines gas bought under different pricing contracts. It aims to keep industrial gas affordable amid rising costs. Global energy markets have been volatile since the conflict began. CEO Ashu Shinghal described the approach to ET.
GAIL Gas Blends LNG Prices
GAIL Gas offers blended pricing for up to 80% of volumes. That applies to contracted industrial volumes specifically. Additional volumes beyond that level cost more. They are priced at international spot rates instead. Those spot rates run higher than the blended price. The approach spreads price risk across GAIL’s supply contracts.
LNG Prices Pressure Industrial Demand
Global fuel prices have surged over the past month. Renewed US-Iran attacks followed an earlier June truce. Oil and gas prices had briefly eased after the truce. They resumed climbing once the conflict flared up again. Brent crude traded around $105 a barrel on Friday. JKM, the Asian spot LNG benchmark, was near $25 per mmbtu. Industrial and commercial customers depend entirely on imported gas. That leaves them especially exposed to global price swings. GAIL Gas’s industrial sales are about 10% below last year.
GAIL India Procurement Mix Provides Flexibility
GAIL Gas mostly sources its LNG through parent GAIL India. GAIL India holds multiple contracts linked to different benchmarks. These include crude oil, Henry Hub and JKM pricing. Such benchmarks do not always move in tandem. Gas bought under different contracts can vary widely in price. This diversified portfolio gives GAIL Gas some flexibility. It can draw on cheaper contracts when spot prices spike.
Crude-Linked Contracts Cushion JKM Surge
All these benchmarks have risen since the Iran war began. But crude-linked and Henry Hub contracts rose less sharply. JKM-linked supplies saw considerably larger increases. GAIL Gas leans more heavily on crude-linked contracts. That mix helps it offer a lower blended price. The relative advantage lies in smaller price increases, not lower costs.
Hormuz Creates Supply Risk
Most of India’s long-term LNG supplies are crude-linked too. However, a large share faces disruption from the Hormuz closure. The Strait of Hormuz remains effectively shut. Gas suppliers declared force majeure when the war began. That force majeure remains in place, Shinghal said. Physical supply security remains separate from contract pricing. Even favourably priced contracts depend on actual gas deliveries. Pricing advantages cannot fully offset this physical supply risk.
Industrial Gas Affordability Remains a Challenge
GAIL Gas is trying to keep industrial pricing competitive. Yet global gas prices remain stubbornly elevated. Demand has already softened compared with last year. Higher costs can push some industrial users to cut consumption. GAIL Gas is trying to limit that effect where possible. Procurement flexibility offers relief, but not full protection.
GAIL can blend supplies priced under different contracts. It cannot fully insulate customers from global LNG swings. Hormuz and broader market pressures remain significant risks. Both procurement strategy and geopolitics will shape the outcome. The balance between affordability and supply security continues.
