India's Petronet in Talks to Renegotiate Gorgon LNG Price

India’s Petronet LNG has begun negotiations to rework price of LNG that it would import from Chevron operated Gorgon project in Australia.

According to Indian business daily Financial Express, Petronet is in talks with ExxonMobil, one of the partners in the project, to rework pricing for a 20-year 1.4 mtpa deal that the two parties signed in 2009. The move follows Petronet’s recent successful price renegotiation with Qatar’s RasGas. Given the backdrop of low global LNG prices, Petronet LNG insisted on renegotiating its long term contract with RasGas. In December, the two parties signed a revised deal. The revised formula bases the price on a three-month average figure of Brent crude oil, replacing a five-year average of a basket of crude imported by Japan, with a rider that Petronet buys an additional 1 million tons of LNG annually. Qatar also waived off a $1.5 billion penalty against India for lifting less gas than agreed. Cost of LNG that India imports from Qatar has slipped below $5 per mmBtu post signing of revised long-term deal.

As per the existing contract, for Petronet, the price of Gorgon LNG would work out to be at least $6.5/mBtu, which is indexed to Japanese Crude Cocktail (JCC) price, Financial Express said, adding that a customer pays another $1.5-$3/mBtu till the gas reaches its doorstep.

“The Gorgon gas is priced at a slope of around 14 percent of JCC, whereas current prices are hovering around 12 percent. Petronet has initiated negotiations and we are supporting it,” Financial Express quoted an official of the company which has agreed to buy LNG procured from Australia as saying.

Meanwhile, Gorgon shipped its first cargo earlier this year. On March 21, 2016, first cargo departed Barrow Island in northwest Australia aboard the tanker Asia Excellence for Japan. However, Chevron has been struggling to maintain sustained production from its first 5.2 million tonne a year production train.