GAIL (India) Ltd, one of the public sector promoters of Petronet LNG Ltd (PLL), feels that swapping is an option which PLL should consider for the gas contracted from Australia’s Gorgon project. This, it feels, will help save at least a dollar on the gas price.

If the Gorgon gas, contracted in 2009, is brought at the current price, it may end up being the most expensive gas India has imported. “The dynamics of the gas market is changing. There is a need to revisit the price and consider options such as swapping,” BC Tripathi, Chairman and Managing Director, GAIL, said.

The landed cost of the Gorgon gas is estimated to be about $16 a unit (gas is measured in million British thermal units). Once the supplies start from 2015, the delivered price to the end consumers such as power, fertiliser as well as small and medium gas-based units will be at least a dollar more at $17 a unit.

Hedging against price

Swap is usually used to hedge against the price of a commodity and is an arrangement whereby a party supplies gas to another party, in exchange the second party agrees to cover the first party from any additional financial liability.

“We as promoters of PLL do understand that things have to be done within the contractual framework. We do need to work together on this. As a promoter we can only propose, things have to be taken forward by PLL,” he added.

At the recently held ‘Gastech 2014’ at Seoul, South Korea, discussions for swapping Australia gas did take place between GAIL and some players. The buyers showed interest, an official who was at the meet, said.

The contract with Mobil Australia Resource Company Pty Ltd is for liquefied natural gas supply of 1.4 million tonnes annually from the Gorgon project. Gorgon is the second long-term contract signed by India, first is with RasGas of Qatar for 25 years, starting 2004. The landed cost of Qatar gas today is $11-12 a unit. After these two contracts, it is only in 2012 that any other Indian company has been able to sign another long-term contract – the supplies to come from Sabine Pass, US.

At present, the imported gas bought from the spot market comes at $16 a unit, gas from long-term contract is available at $12 a unit, while domestically produced gas price ranges from $4.2 a unit to $5.7 a unit. These prices are excluding the transportation charges, marketing margins, and local taxes and levies.

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