GAIL seeks reworking of US LNG contract

State-owned gas utility GAIL India Ltd has sought renegotiating the price of LNG contracted from the US, Oil Minister Dharmendra Pradhan said today.
GAIL, India's biggest gas transporter, has deals to buy 5.8 million tonnes of US LNG per annum for 20 years.
In a written reply to a question in the Rajya Sabha, Pradhan said the company has held multiple discussions with the liquefied natural gas (LNG) supplier, the most recent being last month.
"GAIL has held a number of discussions with Cheniere Energy and Dominion Cove Point LNG LP for renegotiation of the contracts," he said. "The discussions have been held at the working level as well as management level."

The most recent discussion, he said, was held in November.
GAIL has a deal to buy 3.5 million tonnes per annum of LNG for 20 years from Cheniere Energy and has also booked capacity for another 2.3 million tonnes at Dominion Energy's Cove Point liquefaction plant.

This follows Petronet LNG Ltd successfully reopening the August 2009 deal for import of 1.44 million tonnes per annum of LNG for 20 years from Australia's Gorgon project.
"Petronet has been under active discussions with the LNG supplier regarding certain commercial aspects under its agreement and has reached an understanding related to the subject with ExxonMobil," Pradhan said.

He did not elaborate.
Sources said GAIL 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 USD 548 million and a term of 20 years.
It had agreed to pay Cheniere a price of USD 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 USD 7 per mmBtu as against the present USD 9.
LNG in the spot or current market is available for less than USD 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.
The LNG contracted from ExxonMobil in Australia was 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 USD 50 per barrel would cost USD 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 USD 9.5.
The price has been lowered since then.