Wave goodbye to 'take-or-pay' R-LNG contracts

Vol 15, PW 22 (17 May 12) Midstream & Downstream

Increased competition among India’s R-LNG suppliers is benefitting gas customers who are finally in a position to dictate terms.

PETROWATCH learns most major R-LNG customers in India are today refusing to sign Gas Sales and Purchase Agreements (GSPAs) if these include outdated ‘take or pay’ clauses. “India’s LNG market is evolving,” says a GSPC source.

“A couple of years ago a GSPA without a ‘take or pay’ clause was unheard of but now it’s a growing trend. If we don’t agree to remove ‘take or pay’ then customers switch to a supplier who will.

” This means LNG suppliers no longer have the power to penalise customers who fail to draw at least 80% of their Daily Contracted Quantity (DCQ) of gas. Take GSPC, which was forced to swallow a staggering loss of Rs502.19cr ($93.55m) between March 2010 and March 2012, as it could not enforce ‘take or pay’ penalties on four major customers: Torrent Power, which took R-LNG at its 1147.5-MW Sugen gas-fired power station and its 100-MW Vatva station in Ahmedabad; Essar’s 500-MW Bhander station at Hazira; and gas-based stations run by Gujarat government-owned companies Gujarat Industries Power Company and Gujarat State Electricity Corporation.

GAIL, Indian Oil, and Bharat Petroleum have also been forced to do away with ‘take or pay’ clauses in contracts for R-LNG from the 10m t/y Dahej LNG terminal. Recent gas purchase tenders issued by state-owned power producer NTPC and state-owned fertiliser manufacturer IFFCO stipulate they will not entertain ‘take or pay’ penalties.

“From a seller’s market it’s moving to a buyer’s market,” adds an industry source. If customers don’t draw their minimum DCQs, he adds, “Suppliers must grin and bear it.