Commodities

Modi’s American LNG deal: It is all about price

Richa Mishra New Delhi | Updated on September 23, 2019 Published on September 23, 2019

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It is not for the first time that American LNG will flow into Indian network. But, if media reports from Houston are to be believed, then “Howdy, Modi!” has managed to create history as this is being tipped as among one of the largest liquefied natural (LNG) gas deals in the US.

However, what remains to be seen is how commercially viable it will be for the Indian consumers.

Have the Indian companies gone wiser, as the market here is very price sensitive. Will Prime Minister Narendra Modi, who is also seen as tough negotiator, strike a perfect deal?

Today, the landed cost of spot LNG at Indian shores is hovering around $ 5.5 per mmBtu (gas is measured in million British thermal units) and long-term is around $ 9.5 per mmBtu. Transmissions cost, marketing margins, and local taxes and levies are added to this price before it is delivered to the end consumers.

Currently, India consumes approximately 175 million standard cubic metres a day (mmscmd) of gas. The demand in gas sector is directly linked to supply. Today, almost 50 per cent of the consumption requirement is met through imported gas.

While analysts and traders here await the fine print, all one has from Petronet LNG Ltd — which singed a non-binding Memorandum of Understanding with Tellurian Inc at Houston, USA, on September 21 — and its affiliates will like to explore the possibility of purchase of LPG up to 5 million tonne per annum from Driftwood project concurrent with equity investment.

“The process is subject to due diligence and approval of respective Board of Directors,” the company statement read.

Reports from Houston put the size of the Petronet deal at $ 2.5 billion. Petronet has pledged to invest $2.5 billion in Tellurian’s proposed Driftwood LNG export terminal in Lake Charles, La., in exchange for the rights to 5 mtpa of LNG over the lifespan of the project, the reports read.

Energy security

The US has emerged as a one of the key players in the oil and gas sector. Given the current geopolitical tension in many producing nations, there is no surprise than the US wants to leverage the circumstances, and expand its consumer base.

Attacks on Abqaiq and Khurais in Saudi Arabia, the largest single disruption of oil production, has turned large consumers like India to tap other sources — like the US and traditional partners such as Russia — for building their energy security.

On the other hand, the heightened US-China trade tension appears to be benefiting India. “After China, India is the next big growth market that energy suppliers have their eyes on. Its booming oil and gas production puts the US in the fray for the coveted market share along with the traditional West Asian suppliers,” Vandana Hari, Founder and CEO of Vanda Insights said.

But, energy is relatively new to the US-India relationship. “If the US can offer oil and gas supplies on sweetened terms, it can muscle into the Indian market,” she said.

Published on September 23, 2019
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