According to RJ this AM:
Bearish LNG market datapoint: RasGas agrees to loosen terms of contract with Petronet. Qatar is (for now) the world’s top LNG
exporter, and RasGas is Qatar’s second-largest player in this market (behind Qatargas). In that context, yesterday’s disclosure from
RasGas about a negotiated contract modification takes on some potential significance for the industry. RasGas has agreed with its
customer Petronet (India’s state-controlled LNG importer) to waive a $1 billion fine for Petronet buying only 68% of the contractually
required volumes this year. In addition, RasGas has agreed to change the price formula basis from a 60-month oil price average to a 3-
month average, thereby lowering the sales price from $12-13/Mcf to $7-8/Mcf. Legally, RasGas could have insisted on the original
contract terms. If Petronet refused to pay, there would presumably be a breach of contract lawsuit. RasGas, understandably, showed
some flexibility with what is an important customer – if nothing else, it’s easier than going to court. It’s not unheard of for companies in
the energy sector (LNG or otherwise) to negotiate mutually agreeable contract changes such as this, but it’s obviously a bearish
datapoint for the LNG value chain. One reason why we don’t think this particular event carries much read-through for the rest of the
industry is that the 60-month average doesn’t seem to be a common feature of other oil-linked LNG offtake agreements. While specific
contract terms are rarely disclosed publicly, our sense is that pricing tends to be more in line with spot oil prices. For reference, RasGas
is majority-owned by Qatar Petroleum (the national oil company), with ExxonMobil (XOM/$80.28/Underperform) as the international
partner.