By Sonali Paul
MELBOURNE (Reuters) – India has won a large cost cut on the 20-year liquefied gas (LNG) cope with global giant ExxonMobil Corp (N:XOM) inside a rare contract renegotiation, a poor sign for global producers inside a heavily oversupplied market.
Lengthy-term contracts are hardly ever revised within the LNG market, as well as for a large producer to collapse shows how supply from baby plants around australia and also the U . s . States in the last 2 yrs has transformed the marketplace, analysts stated.
“This trend is overall an adverse for sellers, because they are made to provide more versatility to buyers’ must maintain their markets,” stated Saul Kavonic, an analyst with energy consultants Wood Mackenzie.
India continues to be aggressive in seeking cheaper deals, also renegotiating an agreement with Qatar in 2015, however the real discomfort for producers will come if major Asian buyers in Japan, Korea and China adopted suit.
India’s oil minister, Dharmendra Pradhan, stated on Saturday the nation had had the ability to renegotiate an agreement agreed in ’09 for approximately 1.5 million tonnes annually of LNG from ExxonMobil’s share from the Gorgon LNG project around australia likely to Petronet LNG (NS:PLNG).
“Pleased to share great news that India has, all over again had the ability to address the lengthy term cost issue of LNG from Gorgon to match Indian market,” Pradhan stated on social networking.
Indian consumers would soon receive LNG in an “friendly cost”, he stated. Gorgon started conveying LNG this past year.
Citing market sources, RBC analyst Ben Wilson believed ExxonMobil would receive 15 % less revenue per unit on its sales to Petronet underneath the new deal.
If ExxonMobil hadn’t decided to renegotiate anything, Petronet may have scrapped the agreement, departing the main to pursue damages and re-sell the volumes on the weak place market.
“They have most likely taken the lesser of two evils,” stated Wilson, adding that it didn’t bode well for other LNG producers for example Australia’s Woodside Oil (AX:WPL) that has targeted India to diversify its heavy contact with Japan and Columbia.
ExxonMobil didn’t have immediate comment.
Analysts stated the very fact India had were able to pressure ExxonMobil to renegotiate was the most recent proof that buyers possess the upper hands inside a market where LNG place costs are well below oil-linked contract prices which were signed throughout the oil boom.
“The chance of cost renegotiations will end up more acute within the next couple years as place LNG prices remain depressed, even when oil linked prices rise,” Wood Mackenzie’s Kavonic stated.
“The elephant within the room is going to be how negotiations engage in with traditional markets in Korea and japan, and particularly china national oil companies.”