U.S. Shale Gas Assets Target for India's GAIL, France's EDF

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Written by Richard Finlayson, Editor Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Indian state-controlled gas utility and pipeline operator Gas Authority of India Limited (GAIL) (New Delhi, India) is joining forces with a unit of the French energy major EDF (PARIS:EDF) to jointly bid for natural gas and shale gas assets in the U.S. to meet India's ever-growing demand for the fuel.

Rising demand and falling production had created a 40% shortfall in India's gas supplies. This problem has been compounded by production problem at the D6 block at the Krishna-Godaveri basin, which is operated by Reliance Industries (BSE:RIL.BO) (Mumbai, India). This week, GAIL was granted Maharatna company status by the government, which allows it to make investment decisions of up to about $900 million without seeking prior approval from the government.

Now on a 10-day visit to the U.S. with oil minister Veerappa Moily, GAIL Chairman B.C. Tripathi said that the company has signed memorandum of understanding (MoU) in New York with EDF Trading for the acquisition of gas assets. The MoU also will cover the French firm should it invest in downstream trading and marketing ventures in India.

These developments follow a setback six month ago, when GAIL failed to clinch a 20-year, $12 billion deal to import 2 million tons of liquefied natural gas (LNG) per year from the U.S. East Coast. Talk at that time foundered on pricing issues.

Another problem was that the U.S. does not allow the export of shale gas to countries with which it has not signed free-trade agreements (FTAs), such as India. But the U.S. government approved a third-party report on LNG exports in January that contained the views of the domestic energy industry on exporting LNG to FTA non-compliant countries.

At the end of 2011, GAIL signed a $20 billion deal with Sabine Pass to import 3.5 million tons of LNG annually. To date, the Sabine Pass LNG terminal is the only shale gas entity that has permission to export LNG to non-FTA countries.

GAIL continues to wait for the U.S. green light to import gas that became available after acquiring a 20% interest in the Carrizo Oil & Gas (NASDAQ:CRZO) (Houston, Texas) Eagle Ford shale acreage in 2012.

GAIL is India's largest pipeline utility, with an 8,500-kilometer network of pipelines.

EDF Trading, a wholly owned subsidiary of EDF, is the largest importer of coal in Europe and one of the largest providers of market services to the wholesale gas and power sector in North America, with 26,000 megawatt (MW) of generation under management. The company is also the leading electricity trader in Europe. It has a crude oil marketing and transportation business in North America and a dedicated unit serving commercial and industrial retail customers.

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