GAIL Plans $2 Billion Investment to Boost Petrochemical Business

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Researched by Industrial Info Resources (Sugar Land, Texas)--GAIL (India) Limited (BOM:532155) (New Delhi) and Reliance Industries Limited (RIL) (BOM:500325) (Mumbai) are currently assessing the possibility of setting up a $1.3 billion gas-based petrochemical unit in Qatar. A joint delegation visited Qatar on July 7 to present the proposition to state authorities.

In December 2007, GAIL and RIL signed a memorandum of understanding for the project. The agreement states that a group of representatives from both companies will identify and examine potential opportunities for mutual cooperation in the domestic as well as international markets for the next three years. After the identification of projects, GAIL and RIL will establish a special purpose vehicle to undertake project implementation. The two companies initially evaluated various locations, including Abu Dhabi, Angola, Australia, Bahrain, Mexico, Qatar, Russia, South Africa, Vietnam, and the Commonwealth of Independent States. The list has been narrowed to Algeria, Iran, Nigeria, Qatar and Russia, which have rich deposits of natural gas to provide feedstock for the proposed units.

GAIL is aggressively pursuing opportunities in the petrochemical sector, second only to natural gas in importance to the company. GAIL is in the process of investing $7.5 billion during the current Eleventh Five-Year Plan Period of India (2007-12) and has earmarked investments of $2 billion to be made exclusively in the petrochemical sector.

The company will undertake capacity expansion of its petrochemical plant at Pata in Auraiya, Uttar Pradesh, from the current 410,000 tons per year to 440,000 tons per year within the next six months. It is also planning to develop two major petrochemical plants, one in India and one abroad. The Indian unit will be a 1 million-ton-per-year plant developed in Visakhapatnam, Andhra Pradesh, in partnership with state-owned Hindustan Petroleum Corporation Limited (Mumbai), Mittal Energy, Oil India Limited (OIL) (Noida) and Total SA (NYSE: TOT) (Paris, France). The consortium is also evaluating the feasibility of setting up a 15 million-ton-per-year export-oriented refinery.

GAIL is also in discussion with Lukoil (NASDAQ: LUKOY) (Moscow, Russia) to develop a petrochemical unit and a liquefied natural gas terminal in Saudi Arabia and is currently scouting for an Indian partner for this venture. The two companies have established a joint working group to assess the opportunity in Saudi Arabia and also to identify areas of mutual cooperation in the hydrocarbon sector.

The company is planning to set up a petrochemical plant and compressed natural gas (CNG) and city gas distribution networks in Iran, having already discussed the proposition with Iran's Oil Minister Gholam-Hossein Nozari who has expressed interest in the proposals. GAIL plans to send a formal proposal for the project to state-owned National Petrochemical Company of Iran (Tehran). GAIL has already established its CNG and city gas distribution networks in Egypt by acquiring stakes in the nation's Natgas, Shell CNG and Fayum Gas.

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