Indian state-owned company GAIL (Gas Authority of India Ltd.) has finalized the award of a tender for the supply of 12 annual cargoes of LNG to Qatar Energy Trading for a period of five years, starting from April 2025. According to industry sources, the agreement is based on a pricing structure indexed to 115% of the Henry Hub with an additional fixed cost of $5.66 per million BTU (MMBtu).
This auction comes as the global LNG market faces tight forecasts for 2025 and 2026. Several export terminal projects are delayed, contributing to high futures prices for this period. As a result, suppliers adjust their proposals to balance business risks and opportunities.
Contract structure and flexibility
Unlike typical Henry Hub-indexed Destination Delivery (DES) contracts, whose coefficients generally vary between 120% and 121%, this agreement has a lower coefficient (115%) and a higher fixed cost. This formula aligns with GAIL’s existing commitments with the US facilities at Sabine Pass and Cove Point.
The contract also provides flexibility in delivered volumes, with a range of 3.2 to 3.8 trillion BTUs (TBtu) and a 5% tolerance. Such a clause allows the parties to optimize the quantities delivered according to market conditions and downstream needs.
Volume requirements for the Indian market
In India, GAIL markets regasified LNG (RLNG) primarily through long-term contracts. However, shortages of available volumes have reduced its ability to offer competitive offers on the spot market. In a recent financial report, Rakesh Jain, chief financial officer of GAIL, pointed out that high prices in the spot market had restricted purchases in the July-September quarter.
With this new agreement, GAIL will not only be able to secure its deliveries for existing contracts, but also strengthen its presence on the spot market. This is particularly important to meet the needs of urban gas distribution companies in India, which are facing a reduction in domestic gas allocations seen in recent months.
Optimisation pour Qatar Energy Trading
On the supplier side, Qatar Energy Trading benefits from an optimization capacity between cargoes of American origin and those coming from the Middle East. However, risks of losses are anticipated for 2025 and 2026 due to price differences between markets. The coefficient of $5.66/MMBtu could lead to negative deviations during these years.
However, analysts believe these initial losses could be offset by gains from 2027, when spot market prices are expected to soften. This strategy allows Qatar Energy Trading to diversify its medium-term commitments.
Strategic issues for GAIL
This agreement responds to a clear strategy for GAIL: stabilizing its gas supply in a context of global volatility. Access to fixed volumes, at relatively competitive prices, should allow the company to better control its costs and meet its contractual obligations.
For the Indian market, the increase in regasified volumes will also help meet the growing energy demand in the industrial and urban sectors.
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