India gets cheapest LNG as Russia’s Gazprom begins supplies

India received its cheapest LNG under a long-term deal as Russia began shipping natural gas at a delivered price of close to $7 per million British thermal unit.

At current oil prices, the Russian rate is $1.5 per mmBtu less than the price at which Qatar, India’s oldest supplier, delivered liquefied natural gas (LNG). Russian supplies are also cheaper by $1-1.5 per mmBtu than the LNG sourced from Australia and the U.S.

Oil Minister Dharmendra Pradhan, who flew into Dahej to the witnessed arrival of first LNG ship under a 20-year import deal with Gazprom, termed the event as Golden Day in India’s energy pursuit.

State-owned gas utility GAIL India Ltd. had in January taken advantage of Russian company’s inability to deliver LNG from the previously agreed Schtokman project in the Barents Sea, to renegotiate price agreed in 2012.

GAIL also deferred taking deliveries of full 2.5 million tonnes a year LNG. The contract period was extended by three years to accommodate the supplies not taken in initial years as well as get an additional 2 million tonnes over-and-above the 50 million tonnes it had agreed to take in 2012 over the 20 year contract period.

Gazprom supplied the 3.4 trillion British thermal unit (TBtu) of cargo from Nigeria. “First we renegotiated the price of LNG from Qatar, then reworked Australian supplies and now gas from Russia under renegotiated terms has started to flow, Mr. Pradhan said after receiving the LNG cargo.

There exists huge scope for gas usage in Indian economy — from generating power to producing quality steel, he said, adding that increasing gas share would also help the country meet its COP21 commitment to cutting carbon emission.

In the last few years, Indian companies have made an investment of more than $10 billion in acquiring varying stakes in strategic Russian projects including Sakhalin-1, Vankorneft, and Taas-Yuryakh. On the other hand, Russian company led consortium has committed an investment of $13 billion in Esaar Oil in 2016.

Russia is currently, world’s largest crude oil & second largest gas producer in the world. India is world’s third largest energy consumer and fourth largest importer of LNG.

GAIL has renegotiated with Russian supplier Gazprom the terms of the 20-year deal to import 2.5 million tonnes a year of LNG. Both price and volume ramp-up have been renegotiated.

GAIL Chairman and Managing Director B.C. Tripathi said the contracted volume has been lowered from 2.5 million tonnes to 0.5 MT in the first year 2018-19; 0.75 MT in 2019-20; 1.5 MT in the third year 2020-21.

The company has committed to importing the full 2.5 MT a year by the fourth year and make up for the initial volume reduction over the remaining length of the contract.

Also, the price indexation has been changed from the Japan Customs-cleared Crude to Brent, and the oil-linked slope of the contract formula lowered, and therefore the final price.

Sources said the renegotiated contract provides for diverting a part of the volume, originally contracted on a delivered ex-ship basis, to other markets.

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