GAIL Trades Cheniere LNG Cargoes With Gunvor

By MarEx 2017-03-03 19:08:40

Indian state-owned gas company GAIL has reached a deal with Swiss energy trading firm Gunvor to swap American LNG cargoes for shipments from other sources. 

Under the terms of the deal, GAIL will sell Gunvor 0.6 million tonnes of next year's LNG cargoes from Cheniere at a premium to GAIL's contracted price, FOB Sabine Pass, Louisiana. GAIL has signed a 20-year purchase agreement for 3.5 mtpa of gas from Cheniere's export facilities, plus another 2.3 mtpa from Dominion Energy's Cove Point plant.

In return, Gunvor will sell GAIL 0.8 million tonnes of LNG this year at 12 percent of the Brent crude price, delivery included. This will save GAIL the cost of shipping Cheniere's LNG from the Gulf of Mexico to the Indian Ocean, and the Economic Times estimates that the total price differential could be as large as $2 per mmbtu – about 25 percent of the delivered cost. 

Spot market prices of LNG are linked to oil and have fallen with the price of Brent crude, making transportation a larger part of the delivered cost. India is much closer to top producer Qatar than it is to the Gulf Coast, and given the savings available by reducing the tonne-miles it books on LNG carriers, it has issued a solicitation for "counterparties who can take/purchase volumes from GAIL on FOB basis in US . . . and deliver equivalent volumes [to] re-gasification terminals located in India." 

GAIL had originally intended to contract for up to 11 new vessels to transport its American LNG to Indian terminals. However, a "Make in India" provision that would have required one out of every three ships to be built domestically was reportedly a deal-breaker; after pushing back the bidding deadline several times, GAIL decided to cancel the tender and charter ships on the open market instead.

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