GAIL to use 2.5 mln T/yr capacity at Petronet's Dahej plant

* Other firms also eyeing capacity to import LNG at Dahej

* Petronet may join GAIL if it gets Repsol's LNG assets

NEW DELHI Oct 8 (Reuters) - India's Petronet LNG has allowed gas firm GAIL (India)to use annually 2.5 million tonnes capacity at Petronet's liquefied natural gas (LNG) plant at Dahej in western India for importing the fuel, its chief executive A. K. Balyan said on Monday.

GAIL has recently struck a 20-year deal with Russia's Gazprom to buy 2.5 million tonnes of LNG but it does not operate an LNG terminal.

With gas demand expected to grow 14 percent in the next five years, Asia's third-largest economy is scouting for long-term LNG contracts, and aims to raise its LNG handling capacity to 50 million tonnes a year by 2017 from 13.5 million now.

Petronet operates a 10-million tonne a year LNG terminal at Dahej and plans to expand it to 15 million tonnes a year in 2015. It is also building a 5-million tonne a year plant at Kochi in southern India.

"GAIL will get gas at our Dahej terminal. We have given 2.5 million tonne capacity in our Dahej expansion project to GAIL," Balyan told Reuters.

A source at Petronet LNG said companies including Gujarat State Petroleum Corp were also in talks with his firm to use the remaining 2.5 million tonnes capacity it plans to add.

Problems at the Reliance Industries -operated D6 block, off India's east coast, have curtailed domestic gas output while state-run Oil and Natural Gas Corp (ONGC) struggles to arrest declining production from its ageing field.

A consortium of Indian firms - ONGC, Indian Oil Corp and Petronet - wants to buy a 15 percent stake in Russia's Yamal LNG project, Balyan said in July.

GAIL is considering buying LNG assets put up for sale by Spanish firm Repsol in Canada, Peru and Trinidad.

Balyan said Petronet may join GAIL to operate Repsol's LNG assets if the Indian company acquired them. (Reporting by Nidhi Verma; editing by James Jukwey)