In the first rumbling against India’s most expensive LNG deal ever, the state-owned gas utility GAIL has demanded renegotiation of price of gas from Australia’s Gorgon project.
Petronet LNG Ltd, a private firm whose chairman is Oil Secretary, had in August 2009 signed a 20-year deal to buy 1.44 million tonnes per annum of liquefied natural gas (LNG) at a price equivalent to 14.5 per cent of the ruling oil rates.
The formula agreed when Prosad Dasgupta was the Managing Director and CEO of Petronet, translates into $ 14.5 per million British thermal unit price at $ 100 per 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 Kochi port.
This compares to US Henry Hub rate of about $ 4 using which GAIL has recently signed deals to import gas from the US. Qatar, the world’s largest LNG producer, sells gas to India at much lower rates.
GAIL Director (Marketing) Prabhat Singh this month wrote to Petronet Managing Director, A K Balyan seeking reduction in price of Gorgon LNG in view of changed scenario worldwide.
Sources said several long-term LNG deals including Russian giant Gazprom’s agreement to sell gas into Europe have been renegotiated in recent past in view of slump in benchmark gas prices.
“I would like to bring to your kind attention that the circumstances under which the price provisions (at higher slope linked to Japanese crude) were agreed in the said sale purchase agreement (for Gorgon) have changed significantly and the same has long term implications for Petronet and the R-LNG off-takers viz., GAIL, IOC and BPCL,” Singh wrote.
Besides difficulties in marketing of such high priced gas, rupee depreciation against US dollar will make the fuel even more costly.
Singh said over the last few years, regional gas prices in North America, Europe and Asia have seen a record divergence, driven by both supply and demand factors such as the US shale gas boom, the European financial crisis and the Fukushima nuclear crisis.
Petronet Director (Finance), R K Garg confirmed receiving GAIL letter and said the company was examining it internally if renegotiation was feasible.
Exxon Mobil, the seller of Gorgon LNG, will be approached if renegotiation was possible.
GAIL, Indian Oil, Bharat Petroleum and Oil and Natural Gas Corp (ONGC) hold 12.5 per cent each in Petronet.
Petronet is a private listed company but Oil Secretary is the chairman of the company. The Gorgon deal was signed when R S Pandey was the Petroleum Secretary and Chairman of Petronet.
Petronet is to get Gorgon LNG in second half of 2015, with initial supplies of being about 0.48 million tonnes, ramping up to contracted 1.44 million tonnes in two years.