India Hunting for Shorter LNG Deals With Import Demand Doubling

(Bloomberg) -- The good news for global natural gas exporters is that India's largest utility is hunting for new supplies to import. The bad: It's seeking shorter deals than have been traditional in the past.

India now consumes almost 22 million metric tons a year of liquefied natural gas, but that demand could double within just four to five years, according to B.C. Tripathi, the chairman of Gail India Ltd. As a result, his company wants to import more LNG, especially around 2023 and 2024. But he wants deals to last for just 10 years, rather than the more traditional 20.

“It's becoming difficult for one to think long term,” Tripathi said in an interview Thursday at the World Gas Conference in Washington. “The amount of uncertainties has increased.”

While shorter deals allow buyers more flexibility, U.S. developers have talked about the need for longer-term contracts to justify spending millions of dollars on new export terminals in the U.S. Cheniere Energy Inc., for instance, recently announced an agreement to negotiate a 25-year deal with a Taiwan utility.

Those concerns may push India to look elsewhere for its deals. “We would like to remain engaged with our old suppliers,” Tripathi said. “But we are also looking at new opportunities,” from Qatar's expansion project to potential new supplies from East Africa, namely Mozambique.

New Supply

This year, the utility giant had 7 million tons per annum of new supply kick in, of which 3.8 was primarily from the start-up of Cheniere Energy Inc.'s new Louisiana LNG production plant and the rest from Dominion Energy Inc. launching exports from Maryland. About half a million tons came from Australia and the rest were from Russia, he said.

Right now, 60 percent of Gail's LNG supply is tied to crude and he doesn't see Brent losing its dominance as the benchmark anytime soon. The rest is from the U.S. Henry Hub benchmark, he said.

A sign of the market upheaval, Gail has already renegotiated contract terms with Qatar, Exxon Mobil Corp. and Russia's Gazprom OAO, he said. The company abandoned attempts to do the same with Cheniere Energy Inc. which had made public comments that a contract is a contract.

“I appreciate the contract sanctity is paramount and I expect the same, but sometimes when the market goes beyond the fairly manageable limits of either side, the spirit of the contract is that we sit down and readjust,” Tripathi said. “It's not that somebody's pain is somebody's gain. If there is a spirit it's a win win spirit.”

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Millie Munshi

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