Petronet LNG’s contract re-negotiation with ExxonMobil may bring down your fuel bill

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Updated: September 12, 2017 1:31:19 PM

Jal Irani of Edelweiss Financial Services said, "Petronet LNG is essentially just a pass-through.”

The end customer may be the ultimate beneficiary of the Petronet LNG and ExxonMobil contract re-negotiation. (Image: Reuters)

After Petronet LNG successfully re-negotiated a deal with ExxonMobil, in what could potentially save up to Rs 10,000 crores, Jal Irani of Edelweiss Financial Services believes that the end consumer is the ultimate beneficiary. In conversation with CNBC TV18, the oil and gas expert said, “Petronet LNG is essentially just a pass-through.” Petronet LNG will pass on the benefits of the deal to players such as Bharat Petroleum, GAIL and Indian Oil Corporation Ltd, which buy liquefied natural gas from the company as raw material.  These players in-turn will reduce the prices charged to the end consumer, thereby having a direct impact on the household fuel bill.  While GAIL is the largest natural gas distribution company in India, Bharat Petroleum has been conferred with Maharatna status by the government. The customers stand to gain, due to the sheer size of these oil and gas behemoths.

The expert pointed out that GAIL and BPCL are poised to benefit from the deal, as both the companies have the largest take-or-pay contracts, followed by IOCL. In essence, take-or-pay provisions provide that a buyer must pay for specified quantities of energy (gas, for example) from a seller, even if the buyer is unwilling or unable to take such quantities. To that extent, these companies could reduce their losses, says Jal Irani. According to his estimates, BPCL could be saving around Rs 300 crore per year.

“We like BPCL among the three the most,” adding that IOCL is also on top in the pecking order. “The market also reacted almost instantly yesterday, the first part of the contract is with Petronet LNG, it’s driven that up the most. However, the market hasn’t fully understood the implications that Petronet LNG is just a courier than anything else,” he pointed out. The BSE oil and gas index was closed up 1 percent or 150 points at 15,247 level. GAIL Ltd, Petronet LNG, Indian Oil and Reliance Industries were the top gainers on the index.

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.”

The LNG prices are set to be slashed following this development. Pointing out the benefit to customers, Dharmendra Pradhan, tweeted, “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.

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