LNG Price Row between GAIL, Cheniere Looms

 

At a joint news conference with Indian Prime Minister Narendra Modi at the White House this week, Trump said the United States looked forward to exporting more energy, including new major long-term contracts to purchase American natural gas.

 

The effort is part of Trump's policy of seeking to assert power abroad through a boost in natural gas, coal and petroleum exports. He said on Thursday that the "golden era" of the U.S. energy business was now underway.

 

But any new LNG agreements with India will depend on how GAIL and Cheniere of the United States deal with a long-term supply contract signed in 2011 for an estimated $22 billion.

 

India's GAIL has deals to buy 5.8 million tonnes of U.S. LNG per annum for 20 years, mostly with Cheniere, but is now asking to re-negotiate the price. A commissioning cargo was sent last year, but supplies in earnest will only likely start in 2018.

 

Two sources at state-run GAIL said they were trying to re-negotiate the contract.

 

"At current U.S. prices, the landed cost of the LNG (in India) is not very attractive," said one of the sources on condition of anonymity, as he was not cleared to speak to media. Neither source gave any details on what price GAIL was seeking.

 

"We are trying a mix of options on pricing, and re-negotiating is one of them," the source said. "My perception is that the talks with Cheniere in this regard are not very likely to succeed."

 

Officially, GAIL has declined comment on the row.

 

Cheniere, currently the only U.S. company exporting LNG, said it was not open to a lower price.

 

"Our customers expect us to deliver on our commitments, and we expect the same. This is a signed long-term contract that we believe will provide long-term value and we expect the contract to be adhered to," said Eben Burnham-Snyder, a spokesman at Cheniere.

 

The contract price is calculated on a formula based on U.S. spot prices for natural gas, and currently costs India $8.50 per million British thermal units (mmBtu).

 

Traders said that Cheniere would struggle to send cargoes at a lower price.

 

Asian spot LNG prices <LNG-AS>, which exclude all extra costs like shipping, have fallen by more than 40 percent this year to $5.40 per mmBtu amid ballooning oversupply as production from Australia and the United States rises.

 

R.K. Garg, head of finance at Petronet LNG, India's biggest gas importer, told Reuters that at current oil prices, long-term gas contracts were being offered at $6-7 per mmBtu.

 

Mangesh Patankar, head of business development at energy consultancy Galway Group, said that GAIL was trying for lower prices because the company was struggling to sell contracted U.S. LNG on to end-users in India, who are demanding cheaper gas from GAIL themselves. "A lot of the (LNG) buyers are doing that right now. With the ramp up in Australia and U.S. volumes, and demand being not that active in the end-user market, a lot of the buyers have had to do that," he said.

 

Other LNG buyers, including top importer Japan, are also pressing for better terms.

 

Washington has been using LNG as a diplomatic and political tool. Although sales are a commercial matter, Washington has been laying foundations for contracts with key buyers, including China.

 

Trump has made LNG exports a central part of his trade policy, aimed at reviving industry and creating jobs. Asian markets account for about 70 percent of global LNG shipments, and India is one of the fastest-growing importers.