GAIL tempts customers with LNG from Sabine Pass

Vol 17, PW 22 (19 Jun 14) Midstream & Downstream

GAIL is using every trick in the book to encourage customers to sign term sheets for 3.5m t/y of Henry Hub-linked LNG from the Sabine Pass liquefaction facility in the US from 2017-18.

Anxious to sign up as many customers as possible, GAIL has extended its term sheet signing deadline from June 9 to June 30. GAIL has also threatened to revise the gas price up for customers who sign after June 30.

Latecomers will pay anything from $0.50 to $1.50 more than GAIL’s indicative DES price of $13.25 to $13.50/mmbtu, assuming JCC at $100/barrel and Henry Hub at $5/mmbtu. GAIL stresses its price is only a guideline.

But industry sources believe the final GAIL price will be more like $11.50 to $12/mmbtu as the NYMEX Henry Hub futures price in 2017 is expected to be $4.40. Under the 20-year deal with Sabine Pass GAIL must pay 115% of the final settlement price for the NYMEX Henry Hub natural gas futures contract for the month the cargo is scheduled.

“This should work out to $5 to $5.60,” we hear. Other costs are a fixed contract sales price of $3/mmbtu of which 15% will be adjusted annually for inflation.

Add $2.80 to $3.00/mmbtu for shipping and the DES price should be below $12/mmbtu.