First US LNG cargo shipment arrives at Dabhol LNG terminal

New Delhi: In a milestone for India’s new energy sourcing strategy, the first long-term liquefied natural gas (LNG) US cargo from the Houston-based Cheniere Energy Inc. arrived at the Dabhol LNG terminal in Maharashtra.

Of the 9 million tonnes per annum (mmtpa) of LNG contracted by India from the US, state-run GAIL (India) Ltd accounts for 5.8 mmtpa, at an estimated value of $32 billion.

This will translate to 90 cargoes every year from Sabine Pass and Dominion Cove Point LNG terminals.

“GAIL signed two 20-year LNG supply agreements, potentially worth $32 billion, for US LNG exports from the Dominion Cove Point project in Maryland and the Sabine Pass project in Louisiana. Today’s shipment is the first of the contracted loads under the agreement,” the US embassy in New Delhi said in a statement.

These contracts assumes importance given Indian firms having inked long-term LNG contracts totalling 22 mmtpa.

Also, India, the world’s fourth-largest LNG importer, has been trying to leverage the glut in global LNG supplies to renegotiate its contracts. Indian firms have been exploring strategies such as time swap of volumes, destination swaps and contract on free on board basis to reduce the final fuel price. India imported 19 million metric tonnes of LNG in 2016-17.

Some of the successfully negotiated contracts are new deals with Qatar’s RasGas Co. and Exxon Mobil Corp. Apart from the US, new natural gas suppliers such as Mozambique, Tanzania, Egypt, Israel, Canada and Cyprus are expected to enter the LNG market, helping consumers get better prices.

“India’s first LNG Cargo from the US under long-term contract of GAIL (India) Limited was received at Dabhol, today. This marks a new beginning in the Indo-USA energy partnership and trade. Commencement of LNG supplies under the Henry Hub indexed contracts is significant for GAIL and the Indian markets as well,” GAIL added in a separate statement.

According to the state-run firm, it will have an optimum portfolio mix of LNG indexed to Henry Hub (HH) and crude oil and the customers will benefit from such a unique price blend.

US Henry Hub is among the three major international gas trading hubs, the others being the UK National Balancing Point and Japan’s custom-cleared rate.

Petroleum minister Dharmendra Pradhan said LNG contracted from the US is “very economical” and “highly profitable for India.”

“The US has abundant supply of shale gas and the long term LNG contracts signed by Indian companies with US provide India with an access to secure supply source at stable prices which will result in geographical diversification and energy security,” the GAIL statement added.

Bilateral trade between the US and India is around $126.1 billion.

Gas accounts for around 6.5% of India’s primary energy mix as compared to a a global average of 24%, The National Democratic Alliance government plans to increase its share to 15% by 2030. India’s gas demand is expected to be driven by the fertilizer, power, city gas distribution and steel sectors.

India has also been recalibrating its crude sourcing strategy and sourcing heavy crude from Latin America as part of its strategy to become a preferred refining hub. It also sourced crude oil from US last year.

“The US continues to partner with India across the broad range of energy collaboration, whether through traditional energy sources like oil—the first crude oil shipment from the US to India arrived in October 2017 in Odisha—or LNG, or through other sources like coal and renewable energy,” said minister counselor for commercial affairs Patrick Santillo in the US embassy statement.