GAIL Enters Agreement With Fertilizer Major for Cooperation in Indian Gas Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--GAIL (India) Limited (BOM:532155) (New Delhi), India's premier gas transmission and marketing firm, entered into a memorandum of understanding with Indian Farmers Fertilizer Cooperative Limited (IFFCO) (New Delhi), the world's largest cooperative producer and marketer of fertilizers, for cooperation in projects and related opportunities in the domestic gas sector.

Under the agreement, the two firms will assess the potential of setting up a gas-based power project and fertilizer unit. The companies will also identify project opportunities in the compressed natural gas, piped natural gas, chemical and fertilizer industries, and will explore the possibility of sourcing natural gas and liquefied natural gas (LNG) for identified projects. The two firms will conduct feasibility studies for identified projects and will also set up a joint venture company for project implementation, based on technical and economic considerations.

The cooperation agreement between GAIL and IFFCO is being viewed as one of strategic importance, signifying the alliance of a key raw-material supplier and its consumer. With the recent discovery of natural gas reserves in the Krishna-Godavari basin in eastern India, the availability of gas for the fertilizer sector is set to increase. About 13 million standard cubic meters per day of gas is estimated to be available from the new fields for use by existing gas-based fertilizer plants as well as other fertilizer units that are likely to be converted into gas-based plants. The agreement rules out that a lack of pipeline infrastructure could impede the supply of natural gas to the fertilizer industry, as GAIL has a natural-gas pipeline network of 7,000 kilometers and is in the process of adding 5,500 kilometers of pipeline to the network.

IFFCO is primarily engaged in the manufacture, marketing and distribution of nitrogenous and phosphate fertilizers. The organization has five manufacturing units with a combined production capacity of over 8.2 million tons per year of fertilizers. IFFCO also has joint ventures in Australia, Jordan, Oman and Senegal.

In addition to the transmission and marketing of gas, GAIL is involved in processing activities such as fractionation of liquefied petroleum gas (LPG), pentane, propane and special boiling point solvent, transmission of LPG, as well as the production and marketing of high-density polypropylene and linear low-density polypropylene. The firm is actively involved in the exploration and production of natural gas, LNG regasification, city gas distribution, and power generation. GAIL currently supplies 85 million standard cubic meters per day of gas and expects to boost supply to between 150 million and 160 million standard cubic meters per day by the end of 2010. The firm is looking to double revenues from gas transmission and distribution from the present $327 million to $614 million within two years.

GAIL is also set to enter into a supply pact with National Fertilizers Limited (BOM:523630) (Noida), India's second largest producer of nitrogenous fertilizers, which is seeking 650,000 standard cubic meters per day of natural gas. National Fertilizers, which has a requirement of 3.7 million standard cubic meters per day of gas, is expected to require an additional 880,000 standard cubic meters per day of gas in the next two years to support expansion and refurbishment projects.

India has about 20 gas-based fertilizer units that require about 42 million standard cubic meters per day of gas but currently obtain only 29 million standard cubic meters per day. The country may lose investments to the tune of $8.19 billion in the urea sector if manufacturing units are not assured of a timely and reliable supply of fuel.

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