Revealed: cheap US gas will cost 'less than $12...'

Vol 17, PW 15 (13 Mar 14) Midstream & Downstream

GAIL won’t have any problem finding Indian customers for its cheap American LNG imports expected from 2017 at around $12/mmbtu delivered ex-ship (DES).

"This gas will be a goldmine,” swoons a retailer. Another source, a ceramics factory owner, tells us GAIL is contacting potential customers, but won’t reveal the price.

PETROWATCH however, has seen a copy of the LNG Sale and Purchase Agreement signed by GAIL with Sabine Pass Liquefaction on December 11, 2011. It reveals GAIL has won an excellent fixed contract sales price of $3/mmbtu on the 20-year deal for 3.5m t/y.

GAIL must pay another 115% of the final settlement price for the New York Mercantile Exchange (NYMEX) Henry Hub natural gas futures contract for the month the cargo is scheduled. Another 15% of the fixed contract sales price will be adjusted annually for inflation.

LNG sector sources tell us the NYMEX Henry Hub futures price in 2017 will be around $4.40 to $4.90 so 115% should work out to $5 to $5.60. “Add $2.80 to $3.00/mmbtu for shipping and the delivered ex-ship (DES) price should be below $12/mmbtu,” we hear.

Contrast that with current rates of $17 to $24/mmbtu and GAIL predicts gas-hungry Indian customers will snap it up.