GAIL asked to explain logic of seeking reopening of price

Company which is a co-promoter of Petronet, in July asked the company to seek renegotiation of the deal

State-run gas utility GAIL India Ltd has been asked to explain the basis on which it is seeking renegotiation of India’s most expensive liquefied natural gas (LNG) import deal as the contract with Australia’s Gorgon project has no such clause.

Petronet LNG Ltd, a private firm whose chairman is Oil Secretary, had in August 2009 signed a 20-year deal to buy 1.44 million tonne per annum of LNG at a price equivalent to 14.5 per cent of ruling oil rates.      

This translates into $14.5 per million British thermal unit price at $100 a barrel oil price. After adding shipping costs, five per cent import duty and the cost of converting liquid gas back into its gaseous state, the Australian gas will cost close to $18 at Indian ports.

After adding pipeline transportation costs, taxes and margins, the delivered price to a customer will be around $21-22, a rate which GAIL feels will not find many takers.

GAIL, which is a co-promoter of Petronet, in July asked the company to seek renegotiation of the deal, sources said.

Petronet in turn has now asked GAIL to explain the basis on which a signed contract can be reopened, they said.

The contract for Gorgon gas, Petronet feels, has no clause for renegotiation of rates.

Petronet also wants other promoters of the company - ONGC, IOC and BPCL, to also give their opinion on the issue before the Gorgon project company can be approached.

The Gorgon LNG price compares to US Henry Hub rate of about $4 using which GAIL has recently signed deals to import gas from the US. Qatar, the world's largest LNG producer, sells gas to India at much lower rates.

GAIL director (marketing) Prabhat Singh in July wrote to Petronet Managing Director A K Balyan seeking reduction in price of Gorgon LNG in view of changed scenario worldwide.

Sources said several long-term LNG deals, including Russian giant Gazprom's agreement to sell gas into Europe, have been renegotiated in the recent past in view of the slump in benchmark gas prices.

"I would like to bring to your kind attention that the circumstances under which the price provisions (at higher slope linked to Japanese crude) were agreed in the said Sale Purchase Agreement (for Gorgon) have changed significantly and the same has long term implications for Petronet and the R-LNG off-takers viz GAIL, IOC and BPCL," Singh wrote.

Besides difficulties in marketing of such high priced gas, rupee depreciation against US dollar will make the fuel even more costlier.

GAIL, Indian Oil, Bharat Petroleum and Oil and Natural Gas Corp (ONGC) hold 12.5% each in Petronet which is expected to get first supplies from Gorgaon in 2016.