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GAIL and Petronet rise 4%

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LNG Industry,

Bloomberg are reporting that GAIL (India) Ltd. and Petronet LNG Ltd. rose as much as 4% in early trade, on reports of the government renegotiating LNG import pricing with Australia.

India has renegotiated the pricing of LNG imported from Australia’s Gorgon project to save more than Rs 10 000 crore over the life of the contract.

Petronet LNG currently imports LNG from Exxon Mobil Corporation’s Gorgon project in Western Australia. The share purchase agreement is for the supply of 1.44 million tpy of ExxonMobil's share of LNG from the Gorgon LNG Project over a 20-year term. LNG cargoes are delivered to a new terminal under construction at Kochi, Kerala.

A reduction in prices will reduce the raw material cost for Petronet LNG. In the refreshed contract, ExxonMobil has agreed to price gas at 13.9% of the prevailing benchmark Brent crude at the port of delivery. The original contract benchmarked gas at 14.5% of crude prices at the port of loading – the highest indexation agreed in the world.

Assuming WTI crude at US$47.5 per barrel, the gas would have cost US$6.9 per unit at the port of loading. Under the new formula, gas would cost US$6.6 per unit at an Indian port.

In late 2015, Petronet had renegotiated the price of the long-term deal to import 7.5 million tpy of LNG from Qatar, helping save Rs 8000 crore. At that time, it had also signed a contract to buy an additional 1 million tpy till 2028.

State-owned gas utility GAIL India, one of the four PSU promoters of Petronet, had way back in 2013 sought review of the Gorgon LNG price formula. GAIL (India) is a major buyer of the imported gases from Kochi terminal. Thus a reduction in prices would also benefit the company.

Till July 2018, India had imported 5.93 million t of LNG.

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