Average price of â€کterm' R-LNG to compete with KG gas

Vol 10, PW 23 (22 Mar 07) Midstream & Downstream

New power stations and fertiliser factories that want to use R-LNG will benefit most from Delhi’s decision to average term LNG prices.

Since only the owner of R-LNG can average the price, this means a big boost to the fortunes of Dahej term R-LNG owners GAIL, IOC and BPCL. All three are lucky to have access to the cheaper priced R-LNG contract with RasGas through Petronet-LNG.

“GAIL, IOC, BPCL can now import term cargoes at even $9 per mmbtu through Shell at Hazira or any new LNG terminal that comes up and just average that (R-LNG) price with their first (25-year) R-LNG from RasGas.â€‌ In theory, Shell could also take advantage of price averaging, “if they manage to get a cheap term contract to serve as anchor, but as of now they can’t benefit because they don’t have term contracts.

â€‌ Of course, averaging means existing customers of GAIL, IOC and BPCL for the 5m t/y RasGas LNG will pay more, but future new customers will pay less than current global R-LNG prices. “Currently they (old customers) are paying around $5 per mmbtu as the delivered price,â€‌ we hear.

“But now they’ll have to pay $5.83 per mmbtu. Most of these customers belong to price-insensitive sectors like automobiles, ceramics and so on.

â€‌ Thanks to averaging, GAIL, IOC and BPCL will no longer have to worry about losing their R-LNG business to KG gas from Reliance, GSPC or ONGC. “Because of averaging, Dahej R-LNG can compete with Reliance’s KG basin gas,â€‌ says another analyst.

“The landfall price of Panna-Mukta-Tapti gas ($4.75 per mmbtu) is a benchmark in western India, which is where most of the KG gas will be sold.â€‌ Reliance will not price its KG gas cheaper than the PMT landfall price, says this analyst.

“Add to this price transportation and taxes and averaged R-LNG price from Dahej will definitely be competitive.â€‌