GAIL, Petronet Rise 4% On Likely Reduction In LNG Prices

Petronet LNG imports LNG from Exxon Mobil Corporation’s Gorgon project in Australia.

Soumeet Sarkar @soumeet_sarkar

11 Sep 2017, 01:07 PM IST

Liquefied natural gas (LNG) dispenses through pipes on-board the Gallina LNG tanker after docking at the National Grid Plc’s Grain LNG plant on the Isle of Grain in Rochester.

GAIL (India) Ltd. and Petronet LNG Ltd. rose as much as 4 percent in early trade, on reports of the government renegotiating liquefied natural gas import pricing with Australia.

Oil Minister Dharmendra Pradhan too, in a tweet, indicated a reduction in gas prices.

Indian comsumers will receive LNG volumes at amicable price soon; this is done in a similar way to what we had done with LNG from Qatar
— Dharmendra Pradhan (@dpradhanbjp) September 9, 2017

India has renegotiated the pricing of liquefied natural gas (LNG) imported from Australia’s Gorgon project to save more than Rs 10,000 crore over the life of the contract, according to a report by newswire PTI.

Petronet LNG currently imports LNG from Exxon Mobil Corporation’s Gorgon project in Western Australia. The share purchase agreement is for the supply of 1.44 million tonnes per annum of ExxonMobil's share of LNG from the Gorgon LNG Project over a 20-year term. LNG cargoes are delivered to a new terminal under construction at Kochi, Kerala.

A reduction in prices will reduce the raw material cost for Petronet LNG. In the refreshed contract, ExxonMobil has agreed to price gas at 13.9 percent of the prevailing benchmark Brent crude at the port of delivery, according to the PTI report. The original contract benchmarked gas at 14.5 percent of crude prices at the port of loading—the highest indexation agreed in the world.

Assuming WTI crude at $47.5 per barrel, the gas would have cost $6.9 per unit (million British thermal unit) at the port of loading. Under the new formula, gas would cost $6.6 per unit at an Indian port.

In late 2015, Petronet had renegotiated the price of the long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping save Rs 8,000 crore. At that time, it had also signed a contract to buy an additional 1 million tonne per annum till 2028.

State-owned gas utility GAIL India, one of the four PSU promoters of Petronet, had way back in 2013 sought review of the Gorgon LNG price formula. GAIL (India) is a major buyer of the imported gases from Kochi terminal. Thus a reduction in prices would also benefit the company.

Till July 2018, India had imported 5.93 million tonnes of LNG.