GAILBSE -1.15 % has renegotiated the terms of the liquefied natural gas (LNG) purchase deal with Russia’s Gazprom originally signed in 2012, which will bring down the price GAIL pays for the gas in a global market where spot gas prices have crashed in the past three years.
“The two parties have agreed to an adjustment to the price and volume of LNG supply thus enabling GAIL to develop incremental gas markets to offtake these volumes thereby mitigating volume risk,” GAIL said in a statement.
GAIL and Gazprom had earlier agreed to purchase up to 2.5 million tonnes of LNG annually in 2012. The supplies would begin in the second quarter of 2018.
GAIL didn’t quantify the effect of renegotiations on pricing or volume but sources said GAIL will pay less for gas now than under the original contract, and will also have the flexibility to offtake much less than the contracted volume in the first 2-3 years of the 20-year contract. The pricing terms achieved by GAIL with Gazprom is better than in the two other deals that have been renegotiated by India in the past two years with Qatar’s RasGas and ExxonMobil’s LNG project in Australia, sources said.
A sharp drop in gas prices, which are mostly linked to crude prices, in the past three years have ignited efforts by gas buyers to renegotiate pricing and other terms with suppliers. GAIL is also renegotiating contract terms with its US suppliers to cut prices.
It took one and a half years for GAIL to conclude renegotiations with Gazprom resulting in the new contract being indexed to Brent Crude oil from Japan Customs-cleared Crude previously, sources said.
