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Petronet's focus is short term LNG deals for now

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Ltd , India's biggest gas importer, plans to initially operate its Kochi regasification plant with spot or short-term gas deals, while it expects prices of costlier long-term deals to ease in two to three years.

Petronet will start its Kochi terminal in southIndia by December but plans to operate it at full capacity, 5 million tonnes a year, from 2014 due to delays in the commissioning of a key pipeline.

Chief Executive AK Balyan said Petronet would start the Kochi terminal with short-term or spot cargoes. "We see a little softening of prices in spot and short-term deals, and we expect long-term prices to also soften," he said.

Spot prices of liquefied natural gas (LNG) in Asia have been in free-fall since June, reaching $13.50 per million British thermal units (mmBtu) this week, after touching a four-year high of $18.

The long-term availability of LNG in the Asia Pacific is set to increase, given that Japan has decided to restart two of its nuclear reactors and that LNG from Angola, which was meant for the United States, is likely to be diverted to Asia, said R. K. Garg, head of finance at Petronet.

He also said increased supplies from the United States, Africa and Russia would help reduce prices under long-term deals.

Eurasia Group expects 230 million tonnes of new LNG supply to reach global markets between 2015 and 2020, led by exports from the United States, Australia, Africa and the Mediterranean, empowering top Asian customers.

Australia will boost LNG supplies from 2014 onward and is set to overtake top exporter Qatar in 2017. Companies in North America, awash with supplies due to the rapid increase in shale gas output, are eager to export to fetch higher prices.

LONG-TERM STILL NEEDED

Petronet wants to eventually operate 70 percent of its Kochi terminal capacity through long-term LNG deals, similar to its 10 million tonne a year Dahej LNG terminal on the west coast, Garg said, adding his firm is in talks with several companies.

Petronet, partly owned by state-run (India) , and Bharat Petroleum Corp , currently buys 7.5 million tonnes a year of LNG for Dahej under a long-term deal with Qatar.

It has also tied up 1.5 million tonnes of LNG annually from Australia's Gorgon project in a long-term deal from 2014 for its Kochi plant.

India, the world's fourth-largest oil importer, has been scouting for oil and gas assets abroad to meet rising local demand and to feed its expanding refining capacity.

Asia's third-largest economy is scouting for long-term LNG contracts and aims to increase its LNG handling capacity to 50 million tonnes a year by 2017 from 13.5 million tonnes now.

A consortium of Indian firms - state-run Oil and Natural Gas Corp (ONGC) , and Petronet - want to buy a 15 percent stake in Russian gas producer Novatek's Yamal LNG project, Balyan said, adding a decision could be taken in two months.

Problems in the D6 block off India's east coast, operated by Reliance Industries , have curtailed domestic gas output, while struggles to arrest declining production from its ageing field.

Fuel shortages, due to declining local gas output and less-than-estimated coal production, have crippled India's power stations.

Half of India's 1.2 billion people were without power on Tuesday as the grids covering a dozen states broke down, the second major blackout in as many days.

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