New Delhi (Platts)--22Apr2008

State-backed Petronet is girding for a tough fight with LNG buyers from
Japan, South Korea and China for Australian supplies due to come on stream in
the coming years, Prosad Dasgupta, the CEO of India's largest LNG importing
company, told Platts in an interview.
     Petronet has been in talks with ExxonMobil for the latter's share of
output from the Gorgon LNG project in Western Australia since 2005, but has
not sealed any agreements yet. 
     The going will now get tougher with gas and power utilities in Japan and
South Korea, historically world's major consumers of imported LNG, looking for
alternatives to dwindling Indonesian supplies and newcomer China getting
hungrier, Dasgupta said. 
     The supply volume under discussion between Petronet and ExxonMobil was
2.5 million mt/year originally, but after the project's decision in December
2007 to scale up to three liquefaction trains with a capacity of 15 million
mt/year from the earlier 10 million mt/year, "we have sought 3.75 million
mt/year -- Exxon's share with the third train," Dasgupta said.
     "We haven't got a firm start-up date [for the Gorgon project] from them,
but we believe it will be not before the end of 2013," he added. 
     Petronet operates a 6.5 million mt/year LNG import and regasification
terminal at Dahej on India's west coast, which will be expanded to 10 million
mt/year capacity from October. The company so far has only 7.5 million mt/year
of term LNG supplies tied up, from its maiden supplier RasGas of Qatar.
     The Indian company is also building a 2.5 million mt/year import terminal
at Kochi near the country's southern tip, slated for completion in 2011, in
anticipation of a strong growth in domestic gas consumption in the coming
years, but has not found the corresponding term supplies.

     GORGON COULD START SUPPLYING IN 2014  
     ExxonMobil holds a 25% stake in Gorgon, with Chevron holding 50% and
Shell 25%. Each partner is individually marketing its share of LNG from the
project, which will be in proportion to its equity.      
     Only ExxonMobil supplies are still available; Shell and Chevron have
already committed their shares of LNG. Chevron has agreed to sales deals with
Japanese and South Korean companies, and earmarked some of the volume for its
internal trading system. Shell has pledged some of its supply to China, and
will be shipping some to Sempra's Energia Costa Azul terminal in Baja
California, and possibly to its own Hazira terminal in India. 
     If the final investment decision on Gorgon comes about 2009, construction
would take about four and a half years, putting the startup some time in 2014,
Dasgupta estimated. Project leader Chevron has said it expects to complete
front-end engineering design for Gorgon later this year, ahead of an FID. 
     While there is no longer any doubt that the project will materialize,
Japan has emerged as a major contender for the supplies since last year, the
executive said. "The Tepco plant failure has caused a pull of [an additional]
12 million mt/year from Japan alone ... They are buying 15-16 spot cargoes
every month, which is over and above what they used to buy earlier."
     Tokyo Electric Power Company, the world's largest power utility, has lost
nearly half its nuclear generation capacity after shutting its 8.21 GW
Kashiwazaki-Kariwa nuclear power plant since a major earthquake July 16, 2007.
     The outage, which is now expected to last into 2009, has forced Tepco to
boost thermal power generation using natural gas, oil and coal.
     At the same time, the expiration of a clutch of long-term Indonesian LNG
export contracts with Japan and South Korea in the coming years would see
importers from these countries "gunning for every LNG capacity that is
available," Dasgupta said.

     LNG PRICES MOVE TOWARD CRUDE PARITY
     Meanwhile, burgeoning Asia-Pacific demand pitted against limited supplies
and a rise in crude prices is bringing about a radical upward shift in LNG
prices, the Petronet CEO said. 
     Sellers would now be looking to achieve 100% crude price parity for LNG,
he said. On a heating value basis, crude at $100/barrel equates to an LNG
price of $16.70-17.00/MMBtu, Dasgupta estimated, adding, "the view is that
progressively gas and LNG are going to reflect more and more parity with oil
price. So we are in for a high-price regime."
     The older term LNG contracts of Japanese and South Korean buyers are
still yielding prices below those in the US benchmark market Henry Hub. But in
the new deals, the LNG price will approach parity with Japan Customs Cleared
or JCC basket of Japan's average monthly crude import costs, Dasgupta said. 
     "This price [of around $17/MMBtu for LNG at $100/b crude] will get
incorporated into a formula," he said. "Some of this would go as the fixed
component, some as the floating component. But all put together, this [price]
would be the expectation."
     With buyers from Japan, South Korea and China also bidding for Gorgon LNG
supplies, "we have to compete on the price," the Petronet CEO said.
     "Whether we get Gorgon or not ... will depend on the price we are willing
to offer ... That is the only thing that remains to be done."
     Petronet was also eying supplies from Australia's Browse and Pluto LNG
projects, as well as a prospective third train at Russia's Sakhalin 2 project,
but the best time for the company to initiate negotiations was when a project
was going into construction, Dasgupta said. 
     Australian Woodside Petroleum's Pluto LNG project, setting up 4.3 million
mt/year capacity in phase one, is already under construction, with most
supplies committed. The company is targeting FID for its Browse LNG project
offshore Western Australia, which could produce up to 15 million mt/year LNG,
in 2010.
--Vandana Hari, vandana@platts.com