Dominion Denies News of LNG Contract Renegotiation

As Dominion Energy nears the completion of its Cove Point LNG terminal, media reports from India suggest that it is renegotiating the terms of a 20-year take-or-pay sales contract with Indian energy giant GAIL. Dominion has denied the news.

“The characterization of contract renegotiations is false,” the firm said in a statement. “Conversations are ongoing with export customers in preparation for beginning commercial operations but there have been no changes in the contract terms since initial contract execution, and Dominion Energy does not intend to renegotiate contract terms in the future."

However, India's oil minister, Dharmendra Pradhan, told lawmakers on Monday that the state-owned utility was indeed renegotiating its agreements with Dominion and with American competitor Cheniere Energy. He asserted that the latest talks took place in November. 

GAIL joint venture Petronet LNG has recently sought to renegotiate its supply contract with Gazprom, and it has already reached new agreements with ExxonMobil and RasGas. The renegotiated deal with Exxon gives Petronet a lower price ratio, pegs the price to Brent crude rather than a more expensive index, increases the volume of its annual purchases, and makes Exxon responsible for arranging shipping. These contract renegotiations are unusual in the LNG industry, which is founded on multi-decade, take-or-pay contracts indexed to the price of oil.  

The output of the $4 billion, 5.25 mtpa Cove Point facility was contracted out to GAIL, Sumitomo and Tokyo Gas in 2013-14, when LNG prices on the benchmark Tokyo spot index were trending higher than recent levels. Dominion Energy said in a statement that it looks forward to beginning commercial operations next year under the terms of the existing, previously negotiated 20-year contracts with its buyers.