India looks to sign long-term LNG deal benchmarked to spot prices

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In a first of its kind effort to produce natural gas at cheap prices, India’s biggest LNG importer Petronet is close to signing a long-term LNG deal benchmarked to daily or spot prices, which generally are lower than standard rates of such contracts. The CEO and Managing Director of Petronet LNG, Prabhat Singh, however, refused to give details of the supplier, PTI reported.

India bought liquefied natural gas (LNG) under long-term contracts from Qatar and Australia at an average of USD 3.5-4.5 per million British thermal unit in the current quarter. Spot or current prices of LNG – gas turned into liquid at sub-zero temperature for ease of transporting in ships – are in the range of USD 2.

Petronet is initially looking at buying 1 million tonnes of LNG under such a contract and would scale it up depending on the response from customers. In February this year, Petronet had sought bids from suppliers for 1 million tones of LNG per year for 10 years, starting 2024.

The company wanted 1 million tonnes per annum (Mtpa) of LNG on a delivered ex-ship (DES) basis. The contract would be priced using a formula linked to both the US Henry Hub natural gas futures, as well as the Dutch TTF gas futures, which is uncommon in India – where most of the contracts are long-term and linked to crude oil prices.

Currently, Petronet buys close to 10 Mtpa of LNG through contracts with ExxonMobil and Qatar Petroleum. These contracts are priced at an average of benchmark crude oil rates of a particular period.

State gas utility GAIL India Ltd has contracted 5.8 million tonnes of LNG from the US benchmarked to prevailing rates on Henry Hub plus a fixed portion. Meanwhile, Petroleum Minister Dharmendra Pradhan had recently said that India will gradually end central controls on gas pricing as it seeks to attract foreign investment and technology to lift local output. The minister called it an incentive for investors to come to India and take advantage of pricing and marketing freedom to produce and invest more.

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