India’s largest state-owned gas company, GAIL, is pushing its government to use strengthening diplomatic ties to bring U.S. LNG suppliers to the negotiating table.
According to Indian newspaper The Economic Times, the firm has written a letter to the Indian government seeking help. Citing unnamed sources familiar with the matter, the report said GAIL believes U.S. suppliers should consider aligning contract prices with current market “realities” and reduce annual required volumes.
The company has 5.8 million tonnes per annum (Mtpa) of LNG supply contracted with two U.S. companies, in agreements signed in 2011 and 2014. However, the price agreed on the long-term deals are now affecting GAIL’s ability to re-sell the fuel, given spot prices are at record lows, Kallanish Energy notes.
“GAIL wants the total supplies for the contracted 20-year term to be stretched over 25 years,” the report said.
A source was quoted as saying: “GAIL is contract-bound to buy U.S. LNG but if it can’t further sell this to customers, how long can it keep buying and paying for U.S. LNG. The U.S. suppliers should understand this.”
The company is hoping government-to-government discussions can enable a private renegotiation with Cheniere and Dominion.
GAIL signed the long-term agreements with a liquefaction fee of around $3 per million British thermal units (MmBtu). It also has the costs of transport and a purchase price based on U.S. Henry Hub. The deal with Cheniere is said to be based on a 115% premium to Henry Hub.
Spot rates for India delivery have plunged to $2/MmBtu recently amid a global surplus and demand destruction from the Covid-19 pandemic.
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