Indian utility seeks price cut for Gorgan gas contract

In a sign the fallout from the collapse in global gas prices resulting from the US shale gas boom is beginning to hit Australia, the government-owned Gas Authority of India is reportedly seeking the renegotiation of a large gas supply contract from the Gorgon gas project in Western Australia.

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.