Petronet seeks cut in Gorgon LNG price

Petronet LNG Ltd, India's largest liquefied natural gas importer, is seeking at least 10 per cent cut in price of LNG it plans to buy from Australia's Gorgon project.
Petronet LNG, a private firm whose chairman is the 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 prevailing oil rates.
The indexation agreed was one of the highest in the world.
"The world has changed since then and LNG deals are being done at much lower indexation," an official said.

Petronet had late last year renegotiated price of the long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping save Rs 8,000 crore. At that time it had also signed a contract to buy an additional 1 million tonne per annum till 2028.
"That deal for an additional 1 million tonne was at 13.05 per cent of the ruling Brent price. So naturally, the expectation is that the Gorgon should lower the indexation to a minimum 13 per cent," the official said.

Petronet has written to Exxon Mobil, the seller of Gorgon LNG, for reworking the price. "Negotiations are on," he said.

LNG in spot or current market is available at USD 5-6 per million British thermal unit where as Gorgon LNG at current formula will cost USD 7.25 per mmBtu at an oil price of USD 50 per barrel.
After adding 5 per cent customs duty, shipping cost and that of converting liquid gas back into its gaseous state, the landed price of the Australian gas will be close to USD 9.5 at the Kochi port where it is supposed to be delivered.
State-owned gas utility GAIL India, one of the four PSU promoters of Petronet, had way back in 2013 sought review of the Gorgon LNG price formula.

Its the then Director (marketing) Prabhat Singh, who now is the Managing Director and CEO of Petronet LNG, had in June 2013 written a letter seeking reduction in price of Gorgon LNG.
Sources said the case of renegotiating the Gorgon deal has strengthened after Petronet last year got RasGas of Qatar to lower the rate for 7.5 million tons per annum LNG it supplies under a 25-year long term contract since 2004.
The price of imported LNG under this agreement had been linked to crude oil (Japanese Customs Cleared Crude or JCC) and had a concept of floor and ceiling indexed to last 5-year average. The rate thus arrived was higher than spot LNG.

Petronet sought renegotiation of the deal and RasGas agreed to modify the pricing formula to link it with last 3- month average rate of Brent crude oil, they said.
GAIL, Indian Oil, Bharat Petroleum and Oil and Natural Gas Corp (ONGC) hold 12.5 per cent each in Petronet.
Petronet was to get Gorgon LNG by the end of 2015, but supplies have been deferred to 2017.