BG deal with GSPC most likely linked to Brent

Vol 15, PW 7 (06 Oct 11) Midstream & Downstream
     

No one will confirm for sure but it seems likely BG’s long-term LNG deal with GSPC announced last week is linked to Brent.

BG announced on September 29 it had signed a Heads of Agreement (HoA) with GSPC to supply up to 2.5m t/y of LNG for 20 years, from as early as 2014. No details of the LNG price were made available, but a gas sector analyst close to BG says it is likely to be a “floating” rate no less than 14.5% of the Brent crude price.

“BG never does a fixed price deal,” he explains. BG, he adds, will in all likelihood source this gas from its CBM fields at Queensland in Australia, scheduled to begin production from 2014.

Cargoes could land at either Hazira or Dahej, or even a 5m t/y terminal at Mundra promoted by GSPC and the Gautam Adani-controlled Adani Group, if it ever becomes a reality. “GSPC equals the Gujarat government as far as Petronet-LNG and Shell are concerned,” we learn.

“Neither would refuse cargoes from GSPC.” If indeed BG is charging GSPC around 14.5% of the Brent crude price, adds another analyst, domestic power companies will find the gas too expensive.

He cites state-owned power producer NTPC’s hesitation in signing a GSPA with Petronet-LNG for Gorgon LNG from the Kochi terminal, priced against a similar benchmark to Brent: 14.5% of the Japanese Customs-cleared Crude (JCC) benchmark. But city gas retailers, steel producers, ceramics factories and other industrial users will happily buy R-LNG from GSPC, we are told, as it works out 15% cheaper than liquid fuels like naphtha.

Yet another analyst believes BG might sign a separate deal with GSPC to buy back some R-LNG for its own retail subsidiary Gujarat Gas, which faces dwindling domestic gas supplies.