Petronet-LNG needs a deal with Exxon before Chevron

Vol 10, PW 10 (07 Sep 06) Midstream & Downstream

Petronet-LNG needs to agree a deal with Exxon before it can finalise anything with Chevron.

Thats the conclusion of observers watching talks between Petronet-LNG and the two majors for a slice of the LNG output from the 10m t/y Gorgon project in Australia. Talks with Exxon for its entire 2.5m t/y allocation from Gorgon are at an advanced stage; talks with Chevron for the unsold 0.8m t/y portion of its 5m t/y allocation less so, with good reason.

Chevron knows very well that Petronet-LNG cant buy 0.8m t/y on a stand alone basis, we hear. Petronet-LNG will only buy from Chevron if it can add this to the 2.5m t/y it wants to buy from Exxon.

The problem - if you can call it that - is with the size of the LNG ships that will ferry Gorgon LNG some 3000-km to the proposed terminal at Kochi. By the end of next month (31st October) Petronet-LNG will receive offers for two LNG tankers with a capacity of 170,000 cubic metres each, significantly larger than the 135,000 cubic metre capacity LNG tankers ferrying gas 1350 miles from Qatar to Dahej.

You can ship much more than 3m t/y of LNG with two tankers of this size, we hear. In the LNG business you must always optimise your shipments.

Petronet-LNG needs more than 2.5m t/y to optimise its shipments from Gorgon. If Chevron agrees to sell, this would allow Petronet-LNG to bring in 3.3m t/y to Kochi, which broadly translates into 43 full cargoes, assuming tanker capacity of 170,000 cubic metres.

But if it doesnt, Petronet-LNG would be left with two unpalatable options: either it could use the spare capacity in the spot LNG business (risky and time consuming) or it could increase the shipping cost to Kochi by approximately $0.10c per mmbtu, a cost that will be passed on to reluctant customers in southern India.