Gail, Gazprom Revise LNG Pricing, Terms
India’s Gail and Russia’s Gazprom “successfully” re-negotiated and amended the long-term LNG sale and purchase agreement (SPA) originally signed in the year 2012, both companies said January 16. Under the original 20-year contract for an annual 2.5mn metric tons, Gazprom was to start supplying Gail in 2Q 2018.
“The parties have agreed to an adjustment to the price and volume of LNG supply thus enabling Gail to develop incremental gas markets to offtake these volumes thereby mitigating volume risk,” both said in a joint statement, without elaborating further.
India Times newspaper however reported July 2016 that Gail was re-negotiating the LNG price that was linked to crude oil prices, as it expected crude prices to rise but gas prices to stay subdued, given the start-up of major new LNG production plants in Australia and the US. “At current oil prices, Gazprom's LNG will cost more than $7/mmBtu while spot cargoes fetch around $5/mm Btu, a big difference in price-sensitive India”, sources told the newspaper last July.
A source has now told Reuters that pricing has been changed from nine-month linkage to JCC (Japanese customs-cleared crude) to a three-month average of Brent, and that Gail is expected to be allowed to build up to the full 2.5mn mt/yr level during the first three years, but in return the full term of the deal has been extended by two to three years.
Gail managing director B C Tripathi said: ”This deal is a step for GAIL to diversify LNG portfolio by spreading price reference indices across multiple geographies so as to provide consumers greater flexibility in service.” He also said that both firms might engage in portfolio optimisation and LNG swaps.
Vitaly Vasiliev, CEO of Gazprom Marketing & Trading (GMT), said: “We agreed to deliver on our original promise and begin LNG supplies in 2018. We look forward to strengthening a mutually beneficial partnership with Gail going forward." London-based GMT's LNG chief Frederic Barnaud said last month he is taking up a position as Singapore-based Pavilion Energy CEO from February 1 2018.