Gail’s U.S.-linked LNG breaking from traditional ties to crude
DEBJIT CHAKRABORTY and RAKTEEM KATAKEY
NEW DELHI, India (Bloomberg) -- Gail India, the nation’s largest natural gas distributor, is offering supplies from the U.S. at prices tied to the American benchmark as an alternative to its oil-linked contracts.
Gail, which agreed to buy U.S. LNG starting in four years, is offering to resell it at a fixed premium over the price at Henry Hub, the Louisiana clearinghouse and North American benchmark, Marketing Director Prabhat Singh said in an interview. Asia’s LNG contracts traditionally are tied to oil, making them vulnerable to spikes in crude prices.
“Henry Hub is the cheapest gas, and the price we are offering is getting good response among Indian customers,” Singh said by phone on June 4. “We have already signed term sheets with over 100 potential customers.”
Natural gas for July delivery settled yesterday, June 5, at $4.701 per million Btu on the New York Mercantile Exchange. Singh declined to disclose the premiums over the U.S. benchmark that Indian clients would pay, saying only that they will be fixed for five years.
A U.S. benchmark price of $4 per million Btu would mean Asian importers will pay about $11.10 including liquefaction and shipping, Houston-based Cheniere Energy said in a May presentation. Japan, the world’s biggest LNG importer, paid an average $16.61 per million Btu for supplies in March.
With the Henry Hub price down about 24% from its five-year high in February, contracts linked to the U.S. benchmark may end up costing less than oil-indexed supplies from countries such as Qatar and Australia, Singh said. Anadarko Petroleum, based in the Woodlands, Texas, said in March that it has signed deals to sell LNG from its Mozambique fields to Asian buyers at a price linked to both oil and U.S. gas prices.
“If the sales are indexed to Henry Hub, then it’s definitely going to be cheaper than oil-linked prices,” assuming the premium isn’t excessive, said Abhishek Kumar, a London-based energy analyst at Interfax Europe’s Global Gas Analytics.
Asia’s LNG buyers, accounting for about 74% of global consumption in 2013, are considering North American supplies driven by a boom in extraction from shale deposits. While the U.S. has some of the world’s lowest gas prices, the government still restricts LNG exports.
Gail agreed to buy 3.5 Mtpa of LNG for two decades from Cheniere’s Sabine Pass terminal in western Cameron Parish, Louisiana. Gail also booked 2.3 Mtpa capacity in the Cove Point LNG liquefaction terminal at Lusby, Maryland.
Current crude prices mean LNG imported from Qatar to India under a long-term contract costs $15-$16 per million Btu, said Ashish Sethia, head of Asia-Pacific gas and power analysis at Bloomberg New Energy Finance.
India’s natural gas consumption is projected to rise by 1.5% a year from 2010 to 2020, while production from local fields will decrease by an average 1.1% every year during that period, according to the U.S. Energy Information Administration.
Oil and Natural Gas, Indian Oil, Gail and Oil India have invested in gas fields and liquefaction terminals in the U.S, Canada and Mozambique to secure supplies.
“We are aiming at booking nearly half of our U.S. volumes by offering Henry Hub-indexed rates,” Singh said. “We are seeing good demand from industrial users in India and hope to tie up 3.5 million to 4.0 million tons over the next few months,” he said.