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Marcellus Masala: Supply Deal to Send Gas to India Via Cove Point

WGL Midstream has struck a deal to sell up to 430,000 Dth/d of natural gas to GAIL Global (USA) LNG LLC (GGULL) for 20 years. The gas is to be liquefied and exported from the Dominion Cove Point LNG terminal, where GAIL holds capacity, to supply markets in India.

The majority of the gas is expected to be purchased by WGL Midstream through an existing arrangement with Marcellus/Utica producer Antero Resources Corp. WGL Midstream is a unit of WGL Holdings Inc. and an affiliate of utility Washington Gas Light Co. GAIL Global is a unit of GAIL (India) Ltd.

The deal, which takes effect with the startup of Cove Point, "...capitalizes on the growing supply of abundant natural gas from the Marcellus Shale producing region...and now will supply the country of India as well," said WGL Holdings CEO Terry D. McCallister. Liquefaction operations at Cove Point are expected to begin in late 2017 (see Daily GPI, Oct. 30).

Through the long-term agreement, WGL Midstream is GGULL's sole supplier of a minimum of 340,000 Dth/d up to 430,000 Dth/d of gas through a full requirements contract over a 20-year period. WGL Midstream is to make deliveries using transportation capacity released by GAIL through an asset management arrangement. WGL said it anticipates that the structure of these agreements will result in about $9 million of earnings before interest and taxes for the first full year.

The existing arrangement between WGL Midstream and Antero consists of a firm sales agreement for 330,000 Dth/d, which will be used to serve GGULL. WGL Midstream will also have the option to acquire a 30% ownership interest in a 70-mile extension of an existing gathering pipeline system for an investment of about $100 million to $150 million. The gathering system will support Antero deliveries to interstate pipelines serving the Mid-Atlantic market and is expected to be in service in December 2015.

"This agreement is another milestone towards GAIL’s efforts in the sourcing of LNG to meet the rising gas demand in the Indian market," said GAIL Managing Director B.C. Tripathi.

GAIL is India's leading natural gas company with a presence along the entire hydrocarbon value chain spanning exploration and production, LNG, pipelines, liquefied petroleum gas, petrochemicals, city gas distribution, etc. In order to meet the growing appetite of the Indian market, GAIL has been expanding its global presence to secure long-term gas supplies.

GAIL has signed a 20-year sales and purchase agreement with Sabine Pass Liquefaction LLC, a unit of Cheniere Energy Partners, for supply of 3.5 million tons per year of LNG (see Daily GPI, July 18). GAIL also signed a terminal service agreement for 2.3 million tons per year of LNG liquefaction capacity with Dominion Cove Point LNG (see Daily GPI, April 2, 2013).

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