GAIL asks Chevron for Henry Hub-linked LNG

Vol 14, PW 5 (26 Aug 10) Midstream & Downstream

GAIL has added its voice to growing calls to de-link the price of LNG imports from crude oil, and has found a sympathetic ear at Chevron.

Long-term LNG prices for India are entirely linked to the Japanese Customs-Cleared (JCC) crude benchmark. But PETROWATCH learns GAIL now wants LNG suppliers to link 50% of the import price to the less expensive US-based Henry Hub gas pricing benchmark.

With crude hovering around $70/barrel, this translates into an LNG import price of around $10/mmbtu. But today’s Henry Hub price is around $5/mmbtu, driven low by growing shale gas production.

“India should get the advantage of ‘depressed’ US gas prices,” says a GAIL source. “But suppliers are taking full advantage of the high JCC price.

” GAIL, we learn, has been talking about its proposal for nearly eight months to potential LNG suppliers, including Chevron, ExxonMobil, RasGas, Total and Shell. In the last week of July, GAIL’s hopes rose after a meeting with Chevron in Delhi, most likely to discuss future gas supplies from the US major’s uncommitted share of Gorgon LNG.

“Chevron might agree to some link with Henry Hub,” reports a GAIL source. “They didn’t flatly reject our demand, but agreed to consider it.

” GAIL, he adds, also wants Petronet-LNG, India’s largest LNG importer, to stand up to traditional supplier, Qatar-based RasGas, and demand a long-term LNG price linked to Henry Hub. This will be difficult.

“RasGas is always lukewarm when we talk about Henry Hub,” we hear. “It can afford to hold its ground for a while as gas (produced) in Qatar is so cheap, much less than $1/mmbtu.

” But GAIL believes RasGas will eventually start reeling under the rising costs of its new LNG liquefaction facilities and tankers and be forced to soften its stance.