Doubts remain about Petronet’s ‘Howdy, Modi!’ deal with Tellurian for LNG

indica News Bureau-


Petronet LNG Ltd, a joint sector gas company in India, signed a memorandum of understanding (MoU) with the US-based Tellurian last month for import of liquefied natural gas (LNG). The MoU was signed during Prime Minister Narendra Modi’s highly publicized visit to Houston, Texas, for the ‘Howdy, Modi!’ rally.

However, the newspaper Business Standard has reported that there are concerns over the rate of growth of LNG demand in India because of the price-sensitive nature of the market.

Under the non-binding MoU signed Sept 21, Petronet and its affiliates have the option to buy 5 million tonne per annum (mtpa) of LNG from Tellurian’s Driftwood project in Louisiana. The deal comes with the option of making an equity investment.

If Petronet decides to go alone, it will have to invest around $0.5–1 billion for 1 mtpa. Based on industry estimates, this LNG could cost upward of $5 per million metric British thermal unit (mmBtu). To this will be added regassification and other charges.

The notified domestic gas price in India for Oct–Dec 2019 is $3.23. The price for domestic gas from deepwater fields is capped at $8.43.

India’s LNG consumption is expected to rise to 227 million metric standard cubic meter a day (mmscmd) by FY25 from around 73 mmscmd last fiscal. Overall gas demand is also expected to increase from 443 mmscmd this year to 654 mmscmd by 2026-27.

However, the share of gas in the overall energy basket is around 6% now, down from around 11% during the first half of this decade, mainly because of dependence on costlier imported gas. In addition, natural gas pipelines in India are running at a low 40% capacity utilization.

Majority of Petronet’s long-term deals are linked to crude, which faces a price challenge from other fuels.

Spot LNG is moving away from this linkage, which puts a question mark on crude-linked contracts.

If the company goes ahead with the investment, its finances will come under pressure. According to the March 2019 quarter release, Petronet has Rs 8,566 crore of reserves and surplus. Its debt is around Rs750 crore.

Petronet has sourced about 7.5 mtpa LNG from RasGas of Qatar. The company also has a contract with Exxon Mobil for supply of around 1.4 mtpa of LNG from its Gorgon project.

Major consumers of imported LNG are GAIL (India), Bharat Petroleum Corporation and Indian Oil Corporation.