Exxon ready to supply LNG from Australia to Kochi

Vol 9, PW 18 (15 Dec 05) Midstream & Downstream

Petronet-LNG is in advanced talks with ExxonMobil for the supply of 2.5m t/y LNG from the Gorgon project in Australia to its proposed terminal at Kochi in Kerala.

PETROWATCH learns both sides have finalised the term sheet and have begun price negotiations. Exxon has given clear indications of the price range it is looking for and on 11th December a Petronet-LNG team left for Australia on a weeks visit for more talks.

All other issues are settled. Exxon has agreed to sell its entire share in Phase-I of the Gorgon development to Petronet-LNG over 25 years.

When (if) final agreement is reached, first cargoes should start arriving in 2010 when Gorgon begins commercial supplies. Petronet-LNG will undoubtedly negotiate for a price similar to what it already pays Exxon affiliate RasGas of Qatar with the argument that prices will reduce sharply after 2010 as new LNG trains come on stream in Sakhalin and elsewhere.

RasGas and Petronet-LNG have a 25-year contract for the delivery of 5m t/y LNG to Dahej at $2.53 per mmbtu FOB. This price is valid till December 2008.

In one area Petronet-LNG can expect a fair deal: shipping. From Australia to Kochi, this is unlikely to cross 50 cents per mmbtu.

To Dahej it would be around a dollar. LNG from Australia is viable only at Kochi, we hear.

Freight costs would be more to Dahej. Once Exxon and Petronet-LNG finalise price, the term sheet will be converted to a Heads of Agreement and then into a sales agreement.

Both sides expect this to happen in April or May next year. Petronet-LNG is also talking to Chevron for LNG from Gorgon but Chevron has committed most of its future output to Japan, leaving only 800,000 t/y uncommitted.

Both sides began talks in November and will meet again early next year. Shell is the third partner at the 10m t/y Gorgon project with 25%; Chevron is operator with 50%; and Exxon holds 25%.

Gorgon sits 110-km south of the northwest shelf and holds an estimated 40-tcf recoverable reserves spread across 11 gasfields.