GAIL, Gunvor Sign Time-Swap for U.S. LNG

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Posted by Joseph Keefe

State-run gas company GAIL (India) Ltd has signed a
time-swap deal with Swiss trader Gunvor to sell some of its U.S.
liquefied natural gas (LNG), sources said, as the Indian firm
tries to ease the burden of its costly foreign LNG
supplies.

It is the first time-swap agreement by GAIL, which is trying to
juggle its LNG portfolio to cut costs for price-sensitive Indian
customers after a sharp fall in Asian spot prices made its U.S.
gas unattractive.

The deal equates to around 5 percent of India's 2015/16 LNG
imports and will support a government push to promote use of the
cleaner fuel in fertiliser and the power sector, even as India's
local gas production is falling.

Under the agreement, Gunvor will supply 15 cargoes or about 0.8
million tonnes of LNG to GAIL on India's west cost between April
and December this year in oil-linked prices on a delivered basis
in India, two sources with knowledge of the deal said.

In return GAIL will sell 10 cargoes or about 0.6 million tonnes
next year from Sabine Pass on the U.S. Gulf coast in 2018 at a
premium to its pricing formula on a free-on-board (FOB) basis,
they said.

The deal, priced at about a 12 percent slope to Brent, means GAIL
could get gas from Gunvor at $6.50-$7.00 per million British
thermal units (mBtu), the sources said, competitive with Asian
spot prices and much cheaper than the cost of shipping its own
U.S. gas to India. "We are seeing spot deals (in India) for April
deliveries getting finalised at slightly more than $6.50 (mBtu)
so GAIL's deal with Gunvor is at a very competitive rates," said
an Asian LNG trader.

GAIL is saddled with long-term contracts to take expensive U.S.
gas after embarking on a buying spree between 2011 and 2013 when
the fuel was scarce and prices kept rising.

LNG booked by GAIL under a long term deal with Cheniere Energy,
which owns the Sabine Pass Liquefaction terminal, will cost 115
percent of Henry Hub prices plus a fixed cost of $3 per mBtu. At
current prices, this equates to a cost of about $8.50 per mBtu on
a delivered basis to India.

GAIL was not immediately available for comment. Gunvor declined
to comment.

The Indian firm has a deal to buy 3.5 million tonnes per annum
(mtpa) of LNG for 20 years from Cheniere Energy and has also
booked capacity for another 2.3 mtpa at Dominion Energy's Cove
Point liquefaction plant.

It has so far sold about 0.5 million tonnes of its LNG from the
U.S. projects to Royal Dutch Shell, but has not been able to
attract Indian customers despite repeated attempts.

"GAIL is in talks with more players to sell LNG from its U.S.
portfolio," said one of the sources.

New Delhi wants to lift the share of cleaner-burning gas in its
energy mix to 15 percent in the next three years from about 6.5
percent at present.

GAIL is also in talks with Russia's Gazprom to delay and
renegotiate a 20-year gas purchase deal undercut by low spot
prices.

NEW DELHI, March 3 (Reuters) - State-run gas company GAIL
(India) Ltd has signed a time-swap deal with Swiss trader Gunvor
to sell some of its U.S. liquefied natural gas (LNG), sources
said, as the Indian firm tries to ease the burden of its costly
foreign LNG supplies.

It is the first time-swap agreement by GAIL, which is trying to
juggle its LNG portfolio to cut costs for price-sensitive Indian
customers after a sharp fall in Asian spot prices made its U.S.
gas unattractive.

The deal equates to around 5 percent of India's 2015/16 LNG
imports and will support a government push to promote use of the
cleaner fuel in fertiliser and the power sector, even as India's
local gas production is falling.

Under the agreement, Gunvor will supply 15 cargoes or about 0.8
million tonnes of LNG to GAIL on India's west cost between April
and December this year in oil-linked prices on a delivered basis
in India, two sources with knowledge of the deal said.

In return GAIL will sell 10 cargoes or about 0.6 million tonnes
next year from Sabine Pass on the U.S. Gulf coast in 2018 at a
premium to its pricing formula on a free-on-board (FOB) basis,
they said.

The deal, priced at about a 12 percent slope to Brent, means GAIL
could get gas from Gunvor at $6.50-$7.00 per million British
thermal units (mBtu), the sources said, competitive with Asian
spot prices and much cheaper than the cost of shipping its own
U.S. gas to India. "We are seeing spot deals (in India) for April
deliveries getting finalised at slightly more than $6.50 (mBtu)
so GAIL's deal with Gunvor is at a very competitive rates," said
an Asian LNG trader.

GAIL is saddled with long-term contracts to take expensive U.S.
gas after embarking on a buying spree between 2011 and 2013 when
the fuel was scarce and prices kept rising.

LNG booked by GAIL under a long term deal with Cheniere Energy,
which owns the Sabine Pass Liquefaction terminal, will cost 115
percent of Henry Hub prices plus a fixed cost of $3 per mBtu. At
current prices, this equates to a cost of about $8.50 per mBtu on
a delivered basis to India.

GAIL was not immediately available for comment. Gunvor declined
to comment.

The Indian firm has a deal to buy 3.5 million tonnes per annum
(mtpa) of LNG for 20 years from Cheniere Energy and has also
booked capacity for another 2.3 mtpa at Dominion Energy's Cove
Point liquefaction plant.

It has so far sold about 0.5 million tonnes of its LNG from the
U.S. projects to Royal Dutch Shell, but has not been able to
attract Indian customers despite repeated attempts.

"GAIL is in talks with more players to sell LNG from its U.S.
portfolio," said one of the sources.

New Delhi wants to lift the share of cleaner-burning gas in its
energy mix to 15 percent in the next three years from about 6.5
percent at present.

GAIL is also in talks with Russia's Gazprom to delay and
renegotiate a 20-year gas purchase deal undercut by low spot
prices.

Reporting by Nidhi Verma

Mar 3, 2017

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