Exxonmobil LNG Contract Price Revision to the Indian Advantage Alarms Other Gas Producers

Sep 26th, 2017

The fact that India managed to reduce contract price on liquefied natural gas (LNG) provided by an American energy giant ExxonMobil has become the biggest concern to market experts and other global LNG producers. Apart from this 20-year contract, India had been aggressively pursuing cheap money and drove a hard bargain with Qatar in 2015.

Under the contract, annually India buys 1, 5 million tons of liquefied petrol gas (LPG) from an ExxonMobil supplier Gorgon LNG, Australia. Recently the share of Gorgon LNG has been bought by an Indian Petronet LNG Limited which is rated a fast-growing energy company across the globe. The Indian government boasts that soon national consumers will buy LNG at a more favourable price.

At the LNG market, it is a rare thing to revise prices downwards as suppliers are bound to show great flexibility towards consumer demand that impacts their market shares. A revised contract between India and ExxonMobil for LNG supply from the U.S. and Australia has adversely affected the LNG market within the past two years.
The experts caution global LNG producers and suppliers against further difficulties assuming other consumers from China, South Korea or Japan follow the lead of India.

A recent Dutch bargain by India makes it evident that today consumers have the advantage at the market buying LNG at spot prices which are much lower than contract oil prices fixed during the oil boom.
Market analysts warn about a growing risk of LNG price revision as the price for this fuel will stay depressive even if crude oil prices increase.

ExxonMobil is going to lose 15% of revenues after selling Petronet shares. Some experts believe that the company could have suffered more significantly if it had resold contract LNG volumes at a weak spot market. However ExxonMobil does not comment on the deal, it is a wake-up call for other LNG producers.