GAIL wants reworking of US LNG price pact
State-owned gas utility GAIL India is seeking to renegotiate price of the LNG it has contracted from the US –following a similar one with Australia –to reflect current market realities.
GAIL, India's biggest gas transporter, has deals to buy 5.8 million tonnes of US LNG per annum for 20 years.
"We need to be in sync with the market, whether it is buyer or seller. So, if market dynamics has changed and there is a glut of gas the world over with falling rates, the same should also reflect in our prices," a source said requesting anonymity as the talks are private.
GAIL, he said, is approaching US LNG sellers to reopen the contracts. It wants to renegotiate the 2011 sales and purchase agreement (SPA) with Cheniere Energy for import of 182.5 trillion British thermal units of LNG (equivalent to approximately 3.5 million tonnes) annually, with yearly fixed fees of $548 million and a term of 20 years.
GAIL had agreed to pay Cheniere a price of $3 per million British thermal unit (mmBtu) plus 115 per cent of the final settlement price for the New York Mercantile Exchange Henry Hub natural gas futures contract for the month in which the relevant cargo is scheduled.
Also, 15 per cent of the fixed portion of the contract sales price will be subject to annual adjustment for inflation.
The source said GAIL wants the fixed portion to be lowered to bring down landed cost of LNG to around $7-8 per mmBtu as against the present $9.7. LNG in the spot or current market is available for less than $6 per mmBtu.
US supplies are scheduled to begin from the next year.
Cheniere, currently the only US company exporting LNG, is reportedly not in favour of reopening the signed contracts as it expects the signed 'take-or-pay' agreements to be honoured. Besides the 3.5 million tonnes per annum of LNG from Houston-based Cheniere, GAIL has booked 2.3 mt a year capacity at Dominion's Cove Point liquefaction facility.
GAIL had previously sought reopening of the August 2009 deal for import of 1.44 mt per annum of LNG for 20 years from Australia's Gorgon project.
Gas from Gorgon is indexed at 14.5 per cent of prevailing oil rate. The indexation agreed was one of the highest in the world.
Gorgon LNG at an oil price of $50 per barrel would cost $7.25 per mmBtu at the loading port. Added to that will be shipping cost and import duty as also the cost of converting the super-cooled liquid gas back into its gaseous state, taking the price to $9.5. ExxonMobil-led Gorgon has not accepted the demand so far.
In 2015, India renegotiated price of the long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping save Rs 8,000 crore.
The price of imported LNG under this agreement had been linked to crude oil (Japanese Customs Cleared Crude or JCC) and had a concept of floor and ceiling indexed to last 5-year average. The rate thus arrived was higher than spot LNG.