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Indian customers will receive (Gorgon) LNG volumes at an amicable price soon: Pradhan

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.

Wood 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”.

“With LNG 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 renegotiations.”

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.

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