The southward movement in global gas prices is benefiting consuming nations such as India, with New Delhi succeeding in negotiating better terms for the Gorgon LNG contract that supplies the fuel to Petronet LNGBSE 1.12 %.
The Gorgon contract involving Exxon Mobil’s output in Australia is the second long-term deal to be repriced after RasGas reworked the pricing formula in 2015 in favour of Indian companies. The new prices provide relief to Petronet LNG, BPCLBSE -1.12 %, GAILBSE 0.62 %, and IOCLBSE 1.07 %. India was among the first countries in Asia to rework its longterm gas contacts when Petronet LNG re-negotiated with Qatar’s Rasgas.
India consumed about 19 mtpa of gas in the last fiscal, with half the requirement being met by imports.
Under the new gas pricing formula, the Gorgon output will cost 13.9 per cent of Brent crude as compared with an ear lier ratio of 14.5 per cent of Japanese crude cocktail (JCC) -an Asian benchmark for gas. If one assumes Brent at $50 a barrel, this means gas prices will come down to $6.95 per MMBtu from $7.25. In addition, the new prices will include shipping costs, saving Petronet LNG the transportation expenses.
Gas pricing with the 14.5 per cent JCC ratio has been considered one the most expensive LNG contracts globally.
The savings could translate into a decline of $1 per MMBtu in gas prices. For the entire contract period of 20 years, this would mean savings of around Rs 8,000-10,000 crore. The delivered price of Gorgon contract will be nearly equivalent to RasGas contract prices at around $7 per MMBtu. There are longterm buyers for the entire RasGas contract of 8.5 mmtpa. At revised prices, there would also be significant interest for the entire Gorgon gas supply.
India’s largest LNG terminal operator Petronet LNG has signed the 20-year contract with Exxon in 2009 to buy 1.44 MTPA of LNG. However, under the new pricing formula, Petronet NG would increase the volume by another 1 MTPA.
The higher gas volume will help improve the utilization of the Kochi terminal for Petronet LNG. The utilisation of Kochi has been in low single digits lately. Also, lower prices will allay investor concerns over costs for consumers such as GAIL, BPCL, and IOCBSE 1.07 %. The three companies having 40 per cent, 30 per cent, and 30 per cent shares, respectively , in the off-take of the Gorgon gas contract.
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