In a contract renegotiation deal with global giant ExxonMobil Corp, India has victoriously negotiated a price cut on a 20-year liquefied natural gas (LNG). According to a Reuters report, the original LNG supplies would be priced at less than 14 percent of the Brent oil price, down from about 14.5 percent earlier, while the additional supplies would be priced about 12.5 percent of Brent. India’s Petronet LNG will increase its volumes from the Gorgon LNG project in Australia by an extra 1 million tonnes a year to about 2.5 million tonnes a year, but at cheaper rates than initially agreed in 2009. Here are the key takeaways.
LNG Petronet set to benefit
Currently, India’s largest natural gas importer Petronet LNG, receives gas from Australia at about double the spot price under a deal it signed with ExxonMobil in 2009 to purchase 1.5 million tonnes of LNG annually for 20 years. The estimated benefited arising from this deal is pegged at Rs 10,000 crores. India’s oil minister oil minister Dharmendra Pradhan tweeted on Saturday, “India has, yet again, been able to address the long-term price issue of LNG from Gorgon to suit Indian market.”
Oil and Gas stocks rally
The BSE oil and gas index was closed up 1 percent or 150 points at 15,247 level. GAIL Ltd Oil India Ltd, Petronet LNG, Indian Oil and Reliance Industries were the top gainers on the index. India is Asia’s third largest LNG buyer, which helped the country to renegotiate in 2015 the LNG pricing formula with Qatar’s Rasgas to buy the gas at half the original price. The earlier estimated benefit from the Qatar project was Rs 8,000 crores.
Impact on LNG prices
The LNG prices are set to be slashed following this development. India’s oil minister Dharmendra Pradhan, said on Saturday, “Indian customers will receive (Gorgon) LNG volumes at an amicable price soon. This is done in a similar way to what we did with LNG from Qatar.” The deal will also have rub-off effects on CNG users and metal companies. The likely beneficiaries include steel manufacturers such as Tata Steel, the automobile manufacturers, and the final retail motorists.
Analysts say that this deal may cause real pain for producers, if major Asian buyers in Japan, Korea and China followed suit. “This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets,” said Saul Kavonic, an analyst with energy consultants Wood Mackenzie to Reuters.