Gazprom will deliver up to 2.5 million tonnes of liquefied natural gas (LNG) a year to India under a deal signed with Petronet LNG on Wednesday that could be worth more than $32 billion. The 25-year memorandum of understanding (MoU) underscores Indian efforts to secure power for its fast-growing economy, already Asia's third largest.
Overseas deals are also being sought to help cushion against global price fluctuations and to secure energy supply for a country that relies on imports for two-thirds of its oil. Petronet and Gazprom Marketing & Trading, a unit of Gazprom announced they had signed a preliminary deal for up to 25 years.
Based on market prices of $10 per million British thermal units, it could be worth about $1.3 billion a year, or $32.5 billion in total.
"We will now negotiate pricing, volume, supply timings etc. Discussions on these would begin in a month's time and we want to expedite this and complete the deal as soon as possible," Petronet CEO A. K. Balyan told Reuters.
Petronet shares hit a lifetime high of 144.50 rupees, jumping nearly 5 percent on the news. They closed up 4.2 percent in a Mumbai market which gained 0.6 percent.
With an economy growing by around eight percent a year and gas seen as an attractive option versus carbon-heavy coal and oil, India's demand could double by 2020, making it a promising market for Gazprom which already sells to an Indian state firm.
A source at Gazprom said that supplies could be from its trading portfolio and then from the giant Shtokman project.
"Since it will be a long-term deal, trading volumes will be very small and the majority of the supplies will be from Gazprom's equity portfolio like Shtokman and Yamal, from where supplies will begin after a few years," said Praveen Kumar, senior consultant at FACTS Global Energy in Singapore.
The Shtokman Barents Sea gas deposit is not expected to start LNG production before 2017 which means Gazprom's marketing arm will have to buy or swap up to 2.5 million tonnes of LNG from the market until then.
Petronet has submitted a bid with ONGC and GAIL (India) for a minority stake in Russia's Yamal LNG project, which is set to start production of up to 16 million tonnes of frozen gas a year in 2015-17.
European traders said the agreement with Gazprom would have little impact on supplies as many more projects come on stream globally.
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