GAIL (India) is seeking to re-negotiate one of the country’s costliest LNG deals for sourcing LNG from Exxon Mobil-owned Gorgon LNG plant in Australia. Supplies under the deal are likely to commence from 2015.
Petronet LNG, had, in August 2009, signed a 20-year deal to buy 1.44 million tonnes per annum of LNG at a price equivalent to 14.5 per cent of the ruling oil rates. The formula translates into $14.5 per million metric British thermal unit (mmBtu) at $100 a barrel oil price. After adding shipping cost, 5 per cent import duty and the cost of converting liquid gas back into its gaseous state, the Australian gas will cost close to $17 at the Kochi terminal. This compares to U.S. Henry Hub rate of about $4 using which GAIL has recently signed deals to import gas from the U.S.
Qatar, the world’s largest LNG producer, sells gas to India at much lower rates.
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Officials in the Petroleum Ministry said that GAIL Director (Marketing) Prabhat Singh had written to Petronet Managing Director A. K. Balyan seeking reduction in the price of Gorgon LNG in view of the changed scenario worldwide.
The need for review of the deal and re-negotiate the price comes in view of the falling gas pries world over, and the recent examples where long-term LNG deals, including Russian giant Gazprom’s agreement to sell gas into Europe, have been renegotiated in view of the slump in benchmark gas prices. GAIL feels that apart from difficulties in marketing such high-priced gas, rupee depreciation against the dollar will make the fuel costlier. Mr. Singh said over the last few years, regional gas prices in North America, Europe and Asia had seen a record divergence, driven by supply and demand factors such as the U.S. shale gas boom, the European financial crisis, and the Fukushima nuclear crisis. Petronet has stated that it would consider re-negotiating the deal and approach Exxon Mobil, the seller of Gorgon LNG, for the same. Petronet is to get Gorgon LNG in the second-half of 2015, with initial supplies being about 0.48 million tonnes, ramping up to contracted 1.44 million tonnes in two years.