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State gas utility GAIL India Ltd is offering gas supplies from the US at $12-13, at least a dollar less than the price at which India currently imports the fuel from Qatar on long-term contracts.
GAIL, which has agreed to buy 3.5 million tonnes of liquefied natural gas (LNG) a year for two decades from Cheniere's Sabine Pass terminal in western Cameron Parish, Louisiana, proposes to resell it to Indian customers at prices tied to the US benchmark as an alternative to contracts linked to oil prices.
"We had recently signed LNG procurement contracts from US indexed to Henry Hub prices. We are offering the same Henry Hub indexation price to customers in India," GAIL Chairman and Managing Director B C Tripathi said.
The delivered price of US gas at Indian ports will be in the range of $12 to 13 per million British thermal units.
"It will certainly be less than $13," he said.
In comparison, the landed cost of the LNG that India buys from Qatar on long-term contracts at oil-indexed prices is $13.8. Natural gas produced in India is priced at $4.2 and may double after it is revised shortly.
Tripathi said supplies from the US are expected to start from 2017-18.
"GAIL has an internal requirement of about 1 million tons a year and we are hopeful of tying up customers for the remaining 2.5 million tons," he said.
Natural gas was trading at $4.7 per mmBtu at Henry Hub, the Louisiana clearing house and North American benchmark.
After adding the cost of turning the gas into liquid (LNG) and shipping it to India, the landed cost will come to between $12 to 13 per mmBtu.
Petronet LNG Ltd, the nation's largest liquid gas importer, buys 7.5 million tons a year of LNG from Qatar. At an oil price of $100 per barrel, the landed cost of Qatar LNG is $13.8.
LNG contracts tied to oil make them vulnerable to spikes in crude prices. The US has some of the world's lowest gas prices.
Apart from the 3.5 million tons of LNG from Sabine Pass, GAIL has booked 2.3 million tons a year capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland.
GAIL, Tripathi said, was confident of booking all of the US volumes by offering Henry Hub-indexed rates in next 2-3 months.
