The recent renegotiation of the Gorgon contract between India's Petronet LNG Ltd (PLL) and Mobil Australia Resource Company is bound to open more doors for similar deals, credit rating agency Icra said.
It said that akin to PLL, Gail is also is trying to renegotiate such contracts and swap LNG with other marketers in other regions of the world, it said.
"It is expected that major buyers in Japan, South Korea and China could also look to renegotiate contracts to reflect term prices more aligned to the spot market.
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"Already utilities in Japan have grouped to pool their buying power and seek more flexible and shorter-term deals," K Ravichandran, Senior VP and Group Head - Corporate Sector Ratings, ICRA said in a statement.
As per media reports on the Gorgon contract, it has been agreed to revise the slope of the contract from 14.5 per cent to 13.9 per cent and the pricing will be on DES2 basis rather than FOB3 basis.
Also as part of the deal, PLL will take another 1 MMTPA (million metric tonnes per annum) LNG at a slope of 12.5 per cent of Brent crude price. Akin to PLL, Gail has a 20-year contract with Cheniere Energy for supply of 3.5 MMTPA of LNG and with Dominion Energys Cove Point liquefaction plant for supply of another 2.3 MMTPA.
Due to changing dynamics, LNG has become uncompetitive and GAIL is trying to renegotiate these contracts and also swap LNG with other marketers in other regions of the world, said Ravichandran.
Cumulatively, about 34 MMTPA of new plant capacities is expected to come online in 2017 which along with ramp-up of new capacities commissioned in 2016 is expected to add about 30-34 MT of new production this year.
Several new liquefaction plants are scheduled for start in 2017 including Gorgon Train 3 of 5.2 MMTPA, Cove Point of 5.3 MMTPA, Sabine Pass Train 3 and 4 (4.5 MMTPA each) etc.
These additional volumes are expected to be partly absorbed by China, India, the Middle East and North Africa, Pakistan besides the new markets of Malta and Ghana.
Additionally, Europe will be the target for LNG exporters, especially US-based liquefaction plants.
Nevertheless, absorption of new supply will be a key challenge for LNG suppliers in 2017 which is expected to weigh on LNG prices. Indications as of mid-September show that the Asian spot LNG prices were subdued at USD 5.6/mmbtu owing to rising supplies from Australia and the US.
As per ICRA, on the home front, the outlook for domestic gas utilities sector is stable. The capacity utilisation levels of some gas transmission pipelines would remain sub- optimal in the near to medium term due to shortage of gas supplies but would show an increasing trend with rising LNG consumption.
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