India’s utility GAIL is reportedly looking to renegotiate its 20-year gas purchase agreement with Gazprom of Russia due to low spot prices and weak local demand.
Talks between the two companies will be focusing on postponing most deliveries agreed under the 2.5 million tons per year deal signed in 2012, Reuters reports, citing sources familiar with the matter.
According to the initial agreement, “LNG will be sustainably priced with an oil-indexed formula and delivered to Dahej, Dabhol and Kochi terminals in India.”
However, prices of crude oil are on the rise while the gas price is expected to remain low due to new production capacities coming online in Australia and the United States.
In addition, GAIL is looking to delay the deliveries that were scheduled to begin in 2018 or 2019, and revise the oil-linked price, the report shows.
At current oil prices, GAIL would have to pay more than US$7 per mmBtu for LNG delivered by Gazprom, while spot cargoes are priced at $5 per mmBtu.
GAIL is looking to rearrange its LNG order book following a number of agreements signed between 2011 and 2013.
LNG World News Staff