GAIL A Risk To Australian LNG
BMI View: GAIL's move to renegotiate an LNG import contract priced in 2009 could have serious implications on the profitability of the Gorgon LNG project from which the supply will be sourced. The result of this discussion could also set a perilous precedent for other Australian LNG producers, with companies selling LNG from the region needing to become more competitive in an increasingly global gas market.
GAIL announced it is looking to rework a 20-year LNG supply contract agreed with Petronet LNG in 2009. The deal is linked to the supply of LNG originating from the ExxonMobil's stake of the Gorgon LNG project in Australia, with deliveries commencing in mid-2015. The 2009 agreement arranged for a total of 1.96bn cubic meters (bcm) a year of equivalent LNG to be delivered to the Kochi LNG import terminal at a cost of 14.5% of the prevailing crude price. With the average JCC import price around $104$/bbl for H1 2013 (Petroleum Association of Japan), this would translate to a cost of over 15$/MMBtu before shipping and regasification costs.
Such a price starkly compares to the deal GAIL struck in late 2011 to import gas from Cheniere's Sabine Pass terminal in the US. The 3.5 mtpa (4.76bcm annum) 20-year off-take deal will be charged at 115% of the Henry Hub Price, which would currently be priced at 4.28$/MMBtu. Again this does not include shipping and regasification cost which would be greater due to the longer distance from the US to India. However, at current prices there remains a large discount from US LNG over Australian LNG, even when transportation costs are factored in. Furthermore, Qatar is also selling LNG into Asian markets at much lower prices than those negotiated for the Australian projects.
|US LNG Projects More Cost Effective Than Australia|
|Comparison of Select Australian and US LNG Projects, EPC Costs (US$/tonne)*|