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Centre’s plans to build LNG ships go up in smoke

Centre’s plans to build LNG ships go up in smoke
P Manoj

Mumbai, December 31: The government is abandoning a four-year effort to build LNG ships locally after GAIL (India) Ltd — the state-run natural gas firm which was central to the plan — said it no longer needed to hire some nine new sophisticated tankers for as much as 19 years in view of a potential change in the sourcing of natural gas purchased from the US.

GAIL told a high-level review meeting called by the government in December that it has swapped small quantities and was in the process of swapping larger quantities of “costly” LNG purchased from the US suppliers with other sellers.

Under this arrangement, GAIL would sell a large portion of the US LNG to buyers who would be responsible for shipping the cargo. In turn, GAIL would buy similar quantities from other suppliers such as Qatar who will take care of transporting the cargo. The swap deals would free GAIL from making transportation arrangements.

“GAIL told the meeting that it won’t need such large number of LNG ships estimated initially as it would not be in a position to employ them due to swapping of cargo,” said a Shipping Ministry official briefed on the discussions at the meeting.

GAIL said it has hired one LNG ship from the spot market for three years to start lifting the cargo from January 1, 2018.

“What will we do if GAIL doesn’t want the ships any more,” he said, asking not to be named. A technology collaboration pact signed between South Korea’s Samsung Heavy Industries Co Ltd and state-run Cochin Shipyard Ltd, ended on December 31. The pact was signed in 2015 and was valid till December 2017. “There should have been some valid reason to extend the pact, but, with no hope on the horizon, the pact ended,” the official said.

Cochin Shipyard also secured a licence from Gaztransport and Technigaz (GTT), France to use its patented Mark-III LNG containment systems. Together with technology support from Samsung, Cochin Shipyard emerged as the only local shipyard eligible to build LNG carriers.

A shipping industry official described the development as a “shame” given that Prime Minister Narendra Modi and Shipping Minister Nitin Gadkari were keen on the plan as part of Modi’s ‘Make in India’ initiative.

Modi had taken a keen interest in shipbuilding due to its potential for employment generation and had even visited the main yard of Hyundai Heavy Industries, the world’s largest shipbuilder, at Ulsan during a trip to South Korea in May 2015.

Samsung Heavy also put “time and effort” into the project to make it work by making several trips to India while Cochin Shipyard sent some of its workers to Samsung to be trained in LNG shipbuilding activities.

“Despite these efforts, the plan fizzled out,” the industry official said.

The high cost — at least $100 million more — of building an initial set of LNG tankers in India and the prospect of having to extend government counter-guarantees to the project had led to a rift within the government’s policy managers on the viability of the project. GAIL also wanted Samsung to stand guarantee on the quality of LNG ships built locally.

Arvind Panagariya, the former Vice-Chairman of NITI Aayog, the government think tank, concluded in a report that the plan was not feasible.
(This article was published on December 31, 2017)