Priority is to get cheaper supplies over investments, says Petronet

New Delhi: Petronet LNG Ltd, India's biggest gas importer, on Tuesday said it is looking to secure term LNG supplies at cheaper prices, than exploring investments in liquefaction projects such as one by US energy upstart Tellurian Inc.

"We are exploring the market, but one thing is sure that investments as such are not looking lucrative at this point of time," its CEO Prabhat Singh said at a post-first quarter earnings call with media.

He was asked about the fate of the USD 2.5 billion Tellurian deal, which has already been extended twice.

Petronet had on September 21, 2019, signed a Memorandum of Understanding (MoU) for purchase of up to 5 million tonnes per annum of liquefied natural gas (LNG) from Tellurian Inc's proposed Driftwood LNG terminal for 40 years. The deal was concurrent with Petronet making an equity investment of USD 2.5 billion for an 18 per cent stake in Driftwood.

"All the options are being explored," he said.

Refusing to divulge details of discussions with Tellurian, he said, "we are exploring the market."

Term LNG supplies, he said, were available at benchmarks close to spot or current market price and Petronet was pursuing that option for the moment.

"If you are getting a molecule floating on the water which is very cheap, which we are getting at this point of time, then those are the options which are on top priority today and we are working around that," he said.

Petronet is evaluating offers for the 1 million tonnes per annum LNG deal for 10 years that will be indexed to a spot benchmark. With questions being raised about Petronet locking large volumes from one supplier for a 40-year period at a time when global rates were falling due to glut in the market, the company had invited bids to buy 1 million tonnes per annum of LNG for 10 years.

Suppliers were asked to quote a price lower than 30 cents minus Japan/Korea Marker (JKM) LNG price, which effectively brought the rate close to spot or current prices.

Tellurian was among the 13 suppliers that quoted in the Petronet tender but was not shortlisted. "We are in the process and we would be coming to a conclusion soon," he said on the evaluation of bids.

Singh said Petronet was "working around" the one million tonnes tender which will be a "gift to the nation."

LNG prices under Petronet's current long-term deals with Qatar and Australia stand at about USD 4.5-5 per million British thermal unit (mmBtu) compared to a spot price of about USD 3/mmBtu, he said. Singh said the one million tonnes deal is "actually telling producers that time has come for you to come to consumer level of things."

He went on to state that Petronet is working with the bidders to conclude the deal soon.

"We are working on the deal and we are upbeat and optimist that it should happen," he said.

Hoping to repeat his success at Cheniere Energy — the US liquefied natural gas pioneer — energy tycoon Charif Souki launched Tellurian four years ago but the 27.6 mtpa plant, costing USD 30 billion, remains unbuilt years after construction was due to begin.

LNG market has been pummelled as the coronavirus pandemic has sapped demand.