Indian utility seeks price cut for Gorgan gas contract
In 2009, Petronet LNG entered into a 20-year contract to buy 1.5 million tonnes of liquefied natural gas a year from ExxonMobil's share of the output from Gorgon. ExxonMobil has a quarter interest in the $30 billion Gorgon project.
Chevron has a 47 per cent interest in Gorgon and is managing the development, with the first shipments of gas due next year.
According to a report in the Times of India, Petronet has agreed to pay $US14.50 per million British thermal units (BTU's) for gas from Gorgon, well above the US gas price which is about $US4 per million BTU's. Petronet is India's specialty gas importer in which the gas authority has a large shareholding.
The pressure from India for cuts to the Gorgon price follow a recent move by Russia's Gazprom to cut its export price for gas sold into Europe by an estimated 8 per cent after a decline in the oil price.
Developers of new gas export projects have typically sought premium prices due to the extremely high capital cost of developing new projects, with north Asian utilities in particular traditionally used to paying a high price in return for long-term supply stability.
Even before the collapse in US gas prices, Asian utilities had begun questioning the high premium paid for gas, especially as long-term contracts from existing projects such as the North West Shelf, also in offshore Western Australia, expire.
India's gas authority has been seeking access to US gas, as well as looking at participating in the east Africa boom in projects.
The Gas Authority of India's director of marketing, Prabhat Singh, wrote to Petronet's head, A.K. Balyan, this month seeking a reduction in the Gorgon price, the report said. ExxonMobil failed to respond to a call to respond to the report.
Frequently Asked Questions about this Article…
The Gorgon gas contract refers to a 2009 agreement under which Petronet LNG committed to buy 1.5 million tonnes a year of liquefied natural gas for 20 years from ExxonMobil's share of output from the Gorgon project in Western Australia. The Gas Authority of India is reportedly seeking a renegotiation of that supply deal.
The request reflects the fallout from a global collapse in gas prices driven by the US shale gas boom. The Gas Authority of India and other Asian utilities have been questioning high long‑term premiums, especially as international gas prices have fallen and other suppliers (like Gazprom for Europe) have moved to cut export prices.
According to the report, Petronet agreed to pay about US$14.50 per million British thermal units (MMBtu) for Gorgon gas, while US gas prices are roughly US$4 per MMBtu—significantly lower than the Gorgon contract price.
Key parties mentioned are Chevron (the Gorgon operator with a 47% interest), ExxonMobil (holding a quarter interest whose share is sold under the Petronet contract), and Petronet LNG (the Indian buyer). The Gas Authority of India, which holds a large stake in Petronet, is the government body seeking the price cut.
The article states the first shipments from Gorgon were due next year, and the Petronet LNG agreement signed in 2009 is a 20‑year supply contract for 1.5 million tonnes per year.
The Gas Authority of India has been seeking access to US gas supplies and is also looking at participating in the east Africa projects boom as alternative ways to secure gas and potentially reduce import costs.
The article notes developers have historically sought premium prices because of very high capital costs for new export projects and because north Asian utilities have paid for long‑term supply stability. Renewed pressure to cut prices could prompt buyers to push back on those premiums as global gas prices decline and existing long‑term contracts come up for renewal.
The Gas Authority of India's director of marketing, Prabhat Singh, wrote this month to Petronet's head A.K. Balyan seeking a reduction in the Gorgon price. The report says ExxonMobil failed to respond to a call to comment on the story.
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