GAIL seeks renegotiation of Gorgon LNG deal

NEW DELHI: State-owned gas utility GAIL India has sought renegotiation of India's most expensive LNG import deal as it feels gas from Australia's Gorgon project will find few takers.


Petronet LNG Ltd, a private firm whose chairman is 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 ruling oil rates.

This translates into USD 14.5 per million British thermal unit price at USD 100 per barrel oil price. After adding shipping cost, 5 per cent import duty and the cost of converting liquid gas back into its gaseous state, the Australian gas will cost close to USD 18 at Kochi port.

"GAIL feels there is a case for renegotiating the deal. It is for Petronet to consider," Oil Secretary Vivek Rae said.

"The Petroleum Ministry has no view on the matter. It is between GAIL and Petronet," he said.

The Gorgon LNG price compares to US Henry Hub rate of about USD 4 using which GAIL has recently signed deals to import gas from the US. Qatar, the world's largest LNG producer, sells gas to India at much lower rates.

GAIL Director (Marketing) Prabhat Singh this month wrote to Petronet Managing Director A K Balyan seeking reduction in price of Gorgon LNG in view of changed scenario worldwide.

Sources said several long-term LNG deals, including Russian giant Gazprom's agreement to sell gas into Europe, have been renegotiated in the recent past in view of the slump in benchmark gas prices.

"I would like to bring to your kind attention that the circumstances under which the price provisions (at higher slope linked to Japanese crude) were agreed in the said Sale Purchase Agreement (for Gorgon) have changed significantly and the same has long term implications for Petronet and the R-LNG off-takers viz GAIL, IOC and BPCL," Singh wrote.

Besides difficulties in marketing of such high priced gas, rupee depreciation against US dollar will make the fuel even more costlier.

Singh said over the last few years, regional gas prices in North America, Europe and Asia have seen record divergence, driven by both supply and demand factors such as the US shale gas boom, the European Financial crisis and the Fukushima nuclear crisis.

GAIL, Indian Oil, Bharat Petroleum and Oil and Natural Gas Corp ( ONGC) hold 12.5 per cent each in Petronet. Petronet is a private listed company but Oil Secretary is the Chairman of the company.

Petronet is to get Gorgon LNG in second half of 2015, with initial supplies of being about 0.48 million tonnes, ramping up to contracted 1.44 million tonnes in two years.