Kochi LNG price to have آ‘fixedآ’ and آ‘variableآ’ parts

Vol 8, PW 19 (15 Dec 04) Midstream & Downstream

Petronet-LNG has begun preliminary talks with Petronas, RasGas, Iran, Yemen LNG and Australias North West Shelf for the supply of LNG to its proposed Kochi terminal.

RasGas of Qatar was originally set to supply Kochi with 2.5m t/y from the contracted 7.5m t/y under the SPA (Sale Purchase Agreement) with Petronet-LNG but this quantity will now be diverted to fuel the capacity doubling of Dahej. Petronet-LNG is laying down some basic ground rules in its talks with potential suppliers for Kochi.

We want the LNG price to be split up into a fixed and variable component, a source tells us. We are making this very clear from the beginning.

Petronet-LNG has learnt valuable lessons from its 25-year SPA with RasGas signed in 1999 where the price is linked to the JCC (Japanese Crude Cocktail) and by default the price of a barrel of crude. When it approached the market, Petronet-LNG discovered that potential customers were more at ease with the stable price of subsidised domestic gas and unwilling to sign purchase contracts for regassified LNG where the price could fluctuate wildly.

Petronet-LNG eventually compelled RasGas to review its pricing formula and in September 2003 reached agreement to link Dahej LNG to a fixed JCC crude price of $20 per barrel for five years to 2009. Wiser today, Petronet LNG is determined not to make the same mistake when it negotiates LNG for Kochi.

The percentage of the fixed and variable components (in the LNG price) is a matter of negotiation. The variable component, adds Petronet-LNG, could be linked either to the JCC or to Brent crude.

Kochi will buy 2.5m t/y but Petronet-LNG is unclear how long the contract will last. Weve yet to decide on the tenure, reveals a source.

But it will be not less than ten years. Any interested supplier will also be expected to agree to a price review every five years.