With Local Options, India May Swap Part of Cheniere LNG

LNG carrier, Samsung Heavy Industries (file image)

By MarEx 2016-05-03 21:01:53

On May 2, India's Oil Minister Dharmendra Pradhan said that a new pricing contract between India's Petronet LNG and Qatar's RasGas had brought the agreed LNG price down to less than $5 per mmBtu, less than half of the price it paid in December and less than a third of benchmark Asian spot prices two years prior. The advantageous rate with a nearby supplier coincides with recent reports that Petronet investor GAIL may make adjustments to its gas sourcing, and to recent developments in the Asian LNG market. 

Petronet's previous agreement with RasGas had set a price floor based on high oil prices, said Prabhat Singh, Managing Director and CEO, Petronet LNG. The new contract, which took effect January 1, altered that floor, and Singh said that it resulting in immediate savings.

The pricing formula used by the American firm Cheniere Energy – with which Petronet investor GAIL signed a purchase agreement several years ago – suggests a current contract price of $5.30 (based on 115 percent of the Henry Hub natural gas benchmark plus $3.00 per mmBtu). Shipping would be additional, over a considerable distance. [Contract data provided by Lantau Group]

To carry the gas from Cheniere's U.S. Gulf Coast facility, GAIL published a tender earlier this year for the charter of up to nine newbuild LNG carriers (plus options), with one third to be built in India. Two Japanese shipowning consortia bid, each for three ships plus options, and GAIL is said to be negotiating with the groups on terms. 

The bids would not necessarily cover all nine tendered vessels – and GAIL has announced that it may reduce the number. The firm intends to swap one to two metric tonnes per annum of its contracted Cheniere LNG for gas from another source. Under a swap agreement with a buyer closer to the U.S., GAIL would still buy the Sabine Pass shipment – but another party would take delivery, and in turn promise to ship GAIL an equivalent volume from a nearer location. The company expects savings of 40 to 60 cents per mmbtu, and suggests that the swap may reduce the number of ships required. GAIL has not explicitly named a partner for the swap, nor a point of origin for exchanged LNG, but it has local options in a market that is increasingly oversupplied

At the time of the tender's close, Cochin Shipyard was the only Indian yard to qualify as a certified LNG carrier shipbuilder, through technology licensing from GTT and partnership with Samsung Heavy Industries.  The Economic Times reports that Cochin may secure all of the Indian-built ships, with Samsung providing design and engineering services.