Suppliers look at alternatives to LNG indexation

Vol 7, PW 6 (04 Jun 03) Midstream & Downstream
     

SUPPLIERS MIGHT be unhappy at NTPC's demand for a 'fixed price' contract but most have realised that unless they comply they'll be struck off the list.

Unsurprisingly none are prepared to share details of the exact formula they will submit for the two-stage price bid, probably because they haven't finalized one yet, and even if they have, it might evolve as conditions change and NTPC accepts or reject 'deviations' to its terms. Some suppliers are happy to hint at what we might expect.

One tells us it is considering a formula where the LNG price is set ('fixed') against an average past price but "escalates every year by between 1% and 5% in line with inflation." Another tells us his company is considering a floor and ceiling price set within a price band ('fixed') against a basket of commodities that includes coal, crude, fuels and where inflation constitutes 10% of the basket. Yet another supplier (this one the best placed to offer NTPC the cheapest price) tells us he would be happy to walk away from the tender if NTPC is too stubborn because, "there are much better market opportunities elsewhere." Suppliers are united on one issue: NTPC is deceiving itself if it thinks it can get the cheapest LNG by demanding a 'fixed price' contract.

I don't know who is giving NTPC advice but whoever it is must be giving them bad advice (see