India's Petronet Wants Exxon to Rework Gorgon LNG Price

After having successfully negotiated a revised deal with Qatar’s RasGas, India’s Petronet LNG is now looking to get a reworked deal from Chevron operated Gorgon project in Australia.

"When LNG deals are being done at 12% or 12.5% indexation, the Gorgon deal is certainly on the higher side," Press Trust of India quoted an official as saying. At the government's instance and that of its promoters, Petronet has written to ExxonMobil, the seller of Gorgon LNG, for reworking the price. 

As per the existing contract, for Petronet, the price of Gorgon LNG would work out to be at least $6.5/mBtu, which is indexed to Japanese Crude Cocktail (JCC) price. Adding that a customer pays another $1.5-$3/mBtu till the gas reaches its doorstep. Petronet and ExxonMobil signed a 20-year 1.4 mtpa deal in 2009. The Gorgon gas is priced at a slope of around 14% of JCC.

"Oil prices have fallen from over $100 per barrel that translated into a price of $14.5 per million British thermal unit for Gorgon LNG. But even though rates are less than half of that, still as a matter of principle, the indexation should be lowered," the official said.

LNG in spot or current market is available at $5-6 per mmBtu whereas Gorgon LNG at current formula will cost $6.5 per mmBtu at on oil price of $45 per barrel. After adding 5 percent Customs duty, shipping cost and that of converting liquid gas back into its gaseous state, the landed price of the Australian gas will be close to $9 at the Kochi port where it is supposed to be delivered, Press Trust reported.

Petronet was to get Gorgon LNG by the end of 2015, but supplies have been deferred by a year.