India May Miss The Bus As Lng Prices Slump

The liquefied natural gas (LNG) prices have touched rock bottom. Turkey is offering delivered prices of LNG that barely covers transportation and liquefication costs.

However, India has not frozen even a single long-term contract at this price. In case the government delays finalising contracts till there is economic recovery in South-East Asian countries, the advantage of the low prices will be completely lost.

With big LNG buyers like South Korea and Japan pulling back sharply on incremental purchases in 1998, big producers in Australia, Abu Dhabi, Malaysia and Qatar have cut the prices in search of alternative buyers for several million tonnes of potential LNG output.

 

Fortunately for these sellers, Turkey has rushed into the breach with a bulk order. However, unfortunately for them, Turkey is offering incredibly low delivered prices that hardly cover transportation and liquefication costs. This implies that the sellers are willing to sell the gas free and are charging only liqefication and transport charges.

Mobil-operated Qatargas has won the initial tender at an incredibly low delivered price of $ 2.47 per million British thermal unit (Btu). Now, Turkey is trying to squeeze an even lower price out of the competitors, who are increasingly desperate to maintain any kind of cash flow.

Turkeys LNG price is based on delivery to Marmara Ereglesi, the Turkish LNG import terminal. With transportation costs estimated at around $ 1.50 per million Btu, and liquefication costs pegged at 90c-$ 1 per million Btu, Qatargas appears to be making little profit on the sale.

The Indian government which had recently signed a memorandum of understanding (MoU) with the Quatar government for the supply of LNG is still making efforts to sign the head of agreement by March 31. The head of agreement will include terms and conditions for the supply of LNG. The long-term contract between the two countries would be signed only by December by which time the prices might harden once again.

Petronet, a joint venture for LNG imports between the Gas Authority of India Limited (GAIL), the Oil and Natural Gas Corporation (ONGC), the Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation (IOC), has also invited commercial bids for LNG supplies from the seven suppliers shortlisted by it. These price bids, which may provide the government a benchmark for its negotiations with other suppliers of LNG, will also take a while for formalisation.

The government is planning to import 7.5 million tonnes of LNG. Of this, five million tonnes of LNG would imported through the Dahej port in Gujarat and 2.5 million tonnes through the Kochi port in Kerala.