GAIL under pressure to re-work Cheniere deal

Vol 21, PW 2 (19 Oct 17) Midstream & Downstream

Oil minister Dharmendra Pradhan wants GAIL chairman BC Tripathi to emulate Petronet-LNG managing director Prabhat Singh and renegotiate his company's long-term US LNG deal with Cheniere Energy.

Impressed by Singh's success in renegotiating both the RasGas and Gorgon LNG contracts for Petronet-LNG, Pradhan wants Tripathi to push Cheniere to change its contract from Henry Hub-linked to Brent-linked. "Renegotiating with Cheniere will not be easy for Tripathi," says an industry source.

"Unlike contracts in Qatar and Australia, US contracts are inflexible." Cheniere will begin supplying 3.5m t/y to GAIL by mid-2018 from the Sabine Pass liquefaction facility in Louisiana but at current prices landing these cargoes at any of the four operating terminals in India would be expensive: between $9.7 and $10/mmbtu. Not helping was Donald Trump's statement during Narendra Modi's state visit in June this year that the US wants an even higher price.

Under the 20-year Henry Hub-linked take or pay deal with Cheniere, GAIL must pay a fixed contract sale price of $3/mmbtu plus 115% of the final NYMEX settlement price for Henry Hub futures for the month the cargo is scheduled plus another $0.45/mmbtu or 15% of the fixed contract sales price adjusted annually for inflation. Add $2.50/mmbtu for shipping.

Pradhan wants a Brent-linked price and a DES deal where Cheniere pays shipping costs.

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