Exxon has cut the price of LNG from the Gorgon project in Australia for India, signaling more hard times ahead for producers of the increasingly cheap fuel. Reuters reports that India’s Oil Minister Dharmendra Pradhan announced the renegotiation of the 2009 deal this weekend, noting that if that had failed, New Delhi may have opted out of the contract.
Long-term supply contracts for LNG are seldom renegotiated, but now spot prices for LNG are much lower than the long-term contract stipulated in contracts signed during the last oil boom and tied to the price of crude. One Wood Mackenzie analyst warned that more contract revisions could be on their way over the next two years as LNG on the spot market continues to trade low due to the global oversupply, even if oil-tied prices rise.
Under the contract with Exxon, Indian Petronet will receive 1.5 million tons of LNG from the Gorgon deposit annually at an “amicable price.” This means, RBC analyst Ben Wilson estimates, that Exxon will receive 15 percent less revenue per unit.
Now that India has set a precedent, other major buyers in Asia, which is the biggest market for LNG, may follow in its footsteps and LNG producers will be hard pressed to refuse to lower their prices.
The Asia Pacific as of 2016 received 53.6 percent of global LNG supply, the IGU World LNG Report said. The region imported 48.6 million tons of the fuel, with the combined share of China and India rising by 13 million tons. Although Japan remains the world’s largest LNG importer with a 32.3-percent share of the market, it looks like China and India will catch up fast as both economies turn to cleaner fuels to replace coal and crude oil.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.