India’s GAIL has awarded its LNG purchase tender for procuring 12 cargoes per year starting in April 2025 for a tenure of five years to Qatar Energy Trading, market sources told S&P Global Commodity Insights.
The tender was awarded at a slope of 115% to Henry Hub plus a constant of $5.66/MMBtu with deliveries on the west coast of India, sources said. GAIL had issued the tender in early November.
The deal reflects the expected tightness in the global LNG market in 2025 and 2026 due to a delay in the construction and commissioning of some LNG export terminals, sources said.
This has resulted in LNG forward curves being elevated for 2025 and 2026.
Platts assessed West India Marker, the benchmark price for LNG cargoes delivered to West India, Dubai and Kuwait at $12.588/MMBtu for February Dec. 16.
Unique deal
The deal between GAIL and Qatar Energy Trading is a unique proposition as it is also different to the other Henry Hub-linked contracts offered by other portfolio companies.
Typically, the DES contracts linked to Henry Hub have a formula of 120%-121% slope to Henry Hub plus a constant, which includes liquefaction costs and freight charges.
The tender seems tailored to match the formula that GAIL has with existing US LNG export facilities, sources said.
The deal also signals Qatar Energy Trading offering volumes in a medium-term deal, with market participants saying this will have to be seen in the context of a large volume of contracted LNG supply expected to come online from various projects of QET’s parent company Qatar Energy.
Negative spreads
As per calculations, the average spread between the forward curves of Henry Hub and WIM as on Dec. 10 was $5.92/MMBtu using the settlement values on Chicago Mercantile Exchange and Intercontinental Exchange where the future contracts of the two prices are listed.
The tender by GAIL for this volume closed on Dec. 11, sources said.
GAIL could not be reached for comment on the tender and award details.
Market sources said Qatar Energy Trading would be able to optimize between US and Middle East-origin cargoes, as well as optimize for the quantity range and be able to offer a lower price.
The tender also allowed a flexible cargo range of 3.2-3.8 TBtu along with an optional tolerance of 5% which allows market participants to optimize for the delivered quantity annually, sources said.
However, the forward curves for 2025 and 2026 indicate that offering a price in the mid-$5s/MMBtu would create a potential loss for the seller in 2025 and 2026 of nearly $2.5/MMBtu.
On the contrary, since spot prices are expected to ease starting in 2027, the price constant of mid-$5s/MMBtu would allow the seller to make up for the potential loss of 2025, 2026 by considering potential gains in 2027-2030.
“Not all traders could take a potential mark-to-market hit in the first two years. Who knows how global conditions are after two years and [what if] after taking a loss potential gains are not realized,” a trader said.
Downstream tightness
GAIL has existing contracts on a Henry Hub-linked basis with offtake of nearly 6 million mt/year from Sabine Pass and Cove Point at a formula of 115% Henry Hub plus a constant of nearly $3/MMBtu.
GAIL has marketed significant Regasified LNG volumes as part of long-term contracts in the Indian downstream market on Henry Hub basis at a 119%-121% slope to Henry Hub plus a constant of $6.5/MMBtu and above, sources said.
However, market sources believe that volumes available with GAIL are not sufficient to offer in the spot RLNG market.
Market sources based in India said that GAIL has not been the most competitive RLNG marketer recently due to a shortage of volumes to offer in the spot market.
“We were short of volumes and we could not get the EPMC bid, which comes regularly because we were not having volumes. So, we participated during the bidding process, but based on our prices which, if we were to source, we could not wear those volumes,” said Rakesh Jain, director of finance at GAIL, in an earnings call for the July-September earnings quarter.
Jain explained that spot procurement was lower in the quarter due to elevated prices in the spot LNG market.
Market participants said that city gas distribution companies have been looking for RLNG volumes to compensate for the reduction in the allocation of domestically-produced gas in October and November.
A source said that the contract would allow GAIL to offer RLNG volumes in spot tenders, meet the requirements of existing contracts and potentially sign new downstream contracts.
Source: Platts
