Amid US-Iran war and rising LNG rates, GAIL Gas turns to blended pricing to keep industrial gas affordable

New Delhi: GAIL Gas, a unit of GAIL (India), is using a mix of differently priced natural gas supplies and contractual flexibility to keep prices affordable for industrial customers and sustain demand as rising global fuel prices weigh on consumption, CEO Ashu Shinghal said.

Oil and gas prices have surged again over the past month following renewed US-Iran attacks after easing with the June truce. Brent crude traded around $105 a barrel on Friday, while JKM, the Asian spot LNG benchmark, was near $25 per mmbtu.

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Industrial and commercial customers are entirely dependent on imported gas, making them particularly exposed to the rise in international prices. Gas suppliers had declared force majeure following the onset of the Iran war six months ago and it remains in place, Shinghal told ET.

GAIL Gas is offering industrial customers a blended price for up to 80% of their contracted volumes. Additional volumes are priced at international spot rates, which are higher than the blended price, Shinghal said. Sales to its industrial customers are currently about 10% below last year, he said.

GAIL Gas mostly sources imported LNG through parent GAIL (India), which has multiple purchase contracts linked to different oil and gas benchmarks. Since these benchmarks do not always move in tandem, gas bought under different contracts can vary significantly in price. While all the benchmarks have risen since the Iran war began, contracts linked to crude oil and US Henry Hub gas have seen a smaller increase than those linked to JKM.

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GAIL Gas' procurement portfolio is more exposed to crude-linked contracts than gas benchmarks, helping it offer a lower blended price even as international gas prices rise. Most of India's long-term LNG supplies are also linked to crude oil, although a large share of those supplies has been disrupted by the near-closure of the Strait of Hormuz.