By renegotiating the pricing of liquefied natural gas (LNG) India has
obtained a price reduction on LNG imported from Australia’s Gorgon project and
it could make, with the result, imported fuel affordable to domestic customers,
Indian Oil Minister Dharmendra Pradhan said.
"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," Pradhan said in a tweet.
In 2015 India exercised successfully the same price renegotiation with
Qatar’s Rasgas to buy the gas at half the original price.
Petronet LNG, India’s largest importer of the chilled fuel,
signed the deal back in 2009 under which it agreed to buy around 1.5 million
tonnes a year of LNG from ExxonMobil’s share of the giant Gorgon LNG project
Barrow Island in Western Australia.
The $54 billion LNG project that shipped its first cargo in
March last year, is operated by Chevron that owns a 47.3 percent stake, while
ExxonMobil has a 25 percent share.
Supplies under the original Gorgon deal to Petronet
began from January this year, with the landed price of LNG costing about
$11-$13 per million British thermal units (mmBtu).
“Happy to share good news that India has, yet again, been able
to address the long term price issue of LNG from Gorgon to suit Indian market,”
the Minister said in a brief statement through its social media channels.
“Indian consumers will receive LNG volumes at amicable
price soon; this is done in a similar way to what we had done with LNG from
Qatar,” he said without giving any details about the new pricing terms.
It is reported that India thru this renegotiation of
pricing could save more than Rs 10,000
crore ( $1.56 bn); the Gorgon LNG prices
are now linked to about 13.9 percent of the global oil price on a delivered
basis, according to the report.
Australian business world, however, views the deal in a
different angle. A reporter says this move will weaken the monster project’s profitability and
which will add further pricing pressure on other LNG producers.
Mackenzie analyst Saul Kavonic said the risk of LNG price negotiations would
grow in the next few years as more LNG capacity is brought online in Australia
and the US, keeping spot LNG prices “depressed”.
market oversupply beginning, spot LNG prices are set to remain persistently
below oil-linked contract prices signed during the boom,” he said.
“LNG producers are being forced to provide more
flexibility to buyers to maintain their markets. Over the next few years, this
will place increasing tension on legacy LNG contracts as buyers push for
Mr Kavonic said: “The
material risk for LNG producers is if major price renegotiation concessions
occur in traditional and larger markets like Japan, Korea, Taiwan and China, where
Australia sells most of its LNG.