Post Qatar success, India tries to rework Australia LNG maths

Emboldened by its successful renegotiation of LNG deal with Qatar, India is trying to do an encore and looking at lowering the price of liquefied natural gas 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 of 14.5 per cent of the prevailing oil rates.
The indexation agreed was one of the highest in the world, feels the Oil Ministry and the current company management.
"When LNG deals are being done at 12 per cent or 12.5 per cent indexation, the Gorgon deal is certainly on the higher side," a top source said.

At the ministry's instance and that of its promoters, Petronet has written to Exxon Mobil, the seller of Gorgon LNG, for reworking the price.
"Oil prices have fallen from over USD 100 per barrel that translated into a price of USD 14.5 per million British thermal unit for Gorgon LNG. But even through rates are less than half of that, still as a matter of principle, the indexation should be lowered," the source said.

LNG in spot or current market is available at USD 5-6 per mmBtu where as Gorgon LNG at current formula will cost USD 6.5 per mmBtu at on oil price of USD 45 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 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 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 successfully got RasGas of Qatar to lower the rate for 7.5 mt 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, adding that at the revised formula, the country will save Rs 8,000 crore over the remainder of the contract, that is up to 2028.

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 by a year.