With the dynamics of the gas market changing, Petronet LNG feels that the price at which it inked a contract to buy gas from Exxon’s Gorgon project in Australia could be re-visited, for it may end up being the most expensive gas the country has ever imported.
If the Gorgon gas is brought at the current contracted price, its landed cost will be about $16 a unit (gas is measured in million British thermal units).
A dollar more
Once supplies begin from 2015, the delivered price to end consumers like power, fertiliser as well as small and medium gas-based units will be at least a dollar more, or $17 a unit.
A.K. Balyan, Managing Director and CEO of Petronet, said the review would be done after due consultations with all stakeholders and within the contractual framework.
The contract was signed in 2009, when LNG sources were limited, leading to higher prices.
Today, with more gas sources available, the prices have softened, though they are not very cheap.
“This contract is with Mobil Australia Resource Company Pty Ltd for LNG supply of 1.4 million tonnes annually to the Kochi LNG terminal. At that time, this was probably the best price available and supply was assured for a 20-year period,” Balyan explained.
GAIL (India), one of the public sector promoters of Petronet, now wants the contract price to be reviewed in the context of the changing dynamics of the world LNG industry to make the gas commercially feasible.
Balyan told Business Line that while considering any long-term contract, one had to keep in the mind the offers available at the time the contract was being inked.
Gorgon is the second long-term contract signed by India. The first was with RasGas of Qatar for 25 years starting 2004. The landed cost of Qatar gas today is $10-11 a unit.
After these two contracts, it was only in 2012 that any other Indian company was able to sign another long-term contract — for supplies from Sabine Pass, US.
In fact, at that time, this (Gorgon contract) was termed as the best deal, as China had also inked a contract at a higher price.
Rupee effect
But, compared with the prevailing prices, the Gorgon gas definitely seems expensive, especially as the rupee has depreciated against the dollar.
Over the past few years, factors like delinking of domestic gas prices from oil prices in advanced economies, effects of global recession, growth and demand of renewable energy, among others have also altered the imported gas dynamics.
India has also been working toward its own pricing formula for domestic gas, which will become effective April 2014.
Therefore, the need to make long-term deals sustainable in the interest of buyers and sellers was greater, said Balyan.