The outcome of negotiations between India and ExxonMobil promises problems for the LNG-market
India has significantly reduced the price of liquefied natural gas (LNG) from the US energy giant ExxonMobil for the already signed 20-year contract for the supply of the resource. According Reuters, Industry experts called this "a bad sign for global producers".
According experts, the long-term contracts are rarely reviewed in the LNG market. The results of negotiations between India and ExxonMomil demonstrate how the supply of liquefied natural gas from new plants in Australia and the United States has changed the market over the past two years.
India pursued an aggressive policy in search of cheap deals, as well as revision of the contract with Qatar in 2015. However, real problems await LNG manufacturers in the event, that the main buyers of the resource in Japan, South Korea and China follow this example.
Indian oil minister Dharmendra Pradhan said September 9, that the country has made a review of the terms of the contract agreed in 2009 for the annual supply of approximately 1,5 million tons of LPG from the ExxonMobil stake in the Gorgon LNG project in Australia. Now, this stake is bought by Indian Petronet LNG Limited - one of the fastest growing global energy companies.
Indian consumers will soon receive LNG at a "friendly price," the minister added.
The export of LNG from the Gorgon project began in 2016.
Due to the revision of the terms of the contract with India, ExxonMobil will lose 15% of the proceeds from the sale of its assets to Petronet, believes RBC analyst Ben Wilson. If the US company did not agree to reconsider the contract, Petronet could refuse the deal, as a result of which the major would have to resell the contracted volumes of liquefied natural gas in India in a weak spot market. As a result, ExxonMobill would suffer even greater losses.
"They chose fewer evils," Wilson said, adding that it was a warning signal to other LNG producers, such as Woodside Petroleum from Australia.
ExxonMobil does not comment the situation.
Analysts emphasize, that the fact, that India was able to force ExxonMobil to review the terms of the long-term contract was the latest proof that today buyers have an advantage in the market where spot LNG prices are significantly lower than the contract prices for oil that were signed during the oil boom.
As enkorr reported, India is betting on LNG as a fuel for trucks and buses. "The use of LNG as a transport fuel [is] on the government's list of priorities ...", said the Dharmendra Pradhan.
Europe is accelerating the construction of LNG gas stations, that will become part of the TEN-T transport network, through which trucks using LNG fuel are used, as well as compressed natural gas (CNG).