India's LNG Buyers Encouraged to Rework Deals Amid Global Glut

(Bloomberg) - India’s liquefied natural gas buyers are being encouraged to renegotiate long-term contracts after spot prices tumbled amid a global glut.

"We have asked the companies to renegotiate the LNG deals wherever there is a possibility,” Oil Minister Dharmendra Pradhan said in an interview Monday in New Delhi. “I am hopeful our companies will successfully steer the negotiations.”

India wants to turn an oversupply of LNG to its favor as it seeks greater use of natural gas in its energy mix and seeks to reduce the dependence on crude oil imports.

India is among the first countries in Asia to renegotiate a long-term deal after the glut pushed down prices. Petronet LNG Ltd. in December  reworked a 25-year contract with Qatar’s RasGas Co., resulting in prices dropping by almost half.

Elsewhere in the region, Japan is probing resale restrictions in most of its LNG contracts that may lead to the renegotiation of more than $600 billion worth of deals that run until almost the middle of the century. The chairman of China National Petroleum Corp., the country’s biggest energy company, said in March that it’s looking for opportunities to rework the pricing method on its LNG supply contract with Qatar.

Energy Basket

The price of spot LNG to Asia has fallen by more than 25 percent during the past year. India’s LNG imports surged 59 percent to 8.13 million metric tons in the first five months of the year, while domestic output slipped 8 percent, according to data compiled by Bloomberg Intelligence.

Aligning LNG contracts to current market rates can make natural gas more affordable to Indian customers as the government plans to increase regasification capacity to 55 million tons within five years, from about 21 million now, Pradhan said.

“We want to increase the gas component in our energy basket,” Pradhan said. “We are building a gas grid around the country to increase the use of gas.”

Pradhan on Monday also highlighted the country’s supply deals from Russia, the U.S., Australia and Canada.

Global Supply

GAIL India Ltd. is seeking to defer a 20-year contract to buy liquefied natural gas from Gazprom PJSC until the Russian company’s Shtokman project begins production, according to officials at the South Asian country’s biggest gas transporter, who asked not to be identified citing company policy.

Petronet signed an agreement with Exxon Mobil Corp. in August 2009 to buy 1.5 million metric tons annually for 20 years from Australia’s Gorgon project, with supplies expected to begin by the end of this year.

GAIL also has an agreement to buy 3.5 million tons a year for two decades from Cheniere Energy Inc.’s Sabine Pass terminal, with the supplies expected to start in March 2018. It has also booked 2.3 million tons a year from the Cove Point LNG liquefaction terminal in Maryland, which is set to commence deliveries in December 2017.

Indian Oil Corp. bought a 10 percent stake in Petroliam Nasional Bhd.’s Canadian natural gas fields and a planned export project, which will give the Indian state oil refiner the right to 1.2 million metric tons of LNG per year for two decades.

India is becoming more reliant on imported oil and gas as domestic production lags demand growth. The country will be about 90 percent reliant on imports by 2040, up from 70 percent in 2014, the International Energy Agency said in its most-recent annual World Energy Outlook. The cost of those oil and gas shipments will reach nearly $480 billion by 2040, up from $110 billion today, it said.


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Copyright 2016 Bloomberg News.

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