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Top Indian gas utility pushes Gazprom for LNG price cut

Tuesday, December 13, 2016 - 13:01

[MUMBAI] India's biggest gas utility is seeking a price cut and other changes to a 20-year liquefied natural gas supply contract from Gazprom PJSC, the latest in a series of concessions sought by buyers amid a global gas glut.

GAIL India Ltd is pushing to overhaul the 2.5 million ton a year contract with the Russian gas giant that starts in 2018, BC Tripathi, chairman of the Indian state-run company, said in an interview in New Delhi. The company also plans to charter four to five LNG vessels on short-term contract as it prepares to receive US LNG supplies.

"It's not only duration, it's the price, source of supply, the terms and conditions," Mr Tripathi said of the supply contract Dec 6. "There are a host of contractual issues - all these are being re-looked into." While there are talks on "adapting the contract terms," the deal signed in 2012 is in place and legally binding, the press service for Gazprom's export arm said in response to a request seeking comment. No other details were provided. Its deputy head Alexander Medvedev said in July that Gazprom was in talks on the contract with GAIL and was positive over the result without elaborating.

India is seeking to take advantage of the glut that has pushed prices down almost 60 per cent the past three years, by renegotiating long-term contracts. Last year the country's biggest gas importer, Petronet LNG Ltd, reworked a 25-year contract with Qatar's RasGas Co that resulted in prices dropping by almost half.

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GAIL is currently buying about 2 million tons a year of LNG on a spot basis, comprising about a fifth of its overall purchases, Mr Tripathi said. The supply contract with Gazprom was signed in 2012.

"We are seeing a change in LNG contracting mechanism, with short-term contracts growing and replacing long-term contracts," India's Oil Minister Dharmendra Pradhan said Dec 6.

GAIL, which was the first Asian importer of US shale gas, has bought four cargoes in the spot market from Cheniere Energy Inc's Sabine Pass plant. The company has an agreement to buy 3.5 million tons a year for two decades from the Louisiana 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.

Spot LNG in Singapore increased about 16 per cent from a week earlier to US$8.55 per million British thermal units on Monday.

While US LNG exports are still relatively small, they are having an impact because the contracts are tied to U.S. natural gas prices instead of crude oil that much of the LNG coming to Asia is linked to. They also allow for switching of cargo destinations - a key concern for importers seeking greater flexibility.

GAIL plans to issue a tender for a short-term charter to ferry US shale gas after it scrapped an earlier tender to lease nine carriers, including three to be built in India, on a long-term basis.

India wants to turn the global glut of LNG to its favor as it seeks to boost the amount of natural gas in its energy mix to 15 per cent by 2020 from about 6.5 percent now.

"Buyers will continue to have options," Mr Pradhan said.

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