India's GAIL signs 1st time-swap deal for U.S. LNG with Gunvor

State-run gas company GAIL (India) Ltd has signed a time-swap deal with Swiss trader Gunvor to sell some of its U.S. liquefied natural gas (LNG), sources said, as the Indian firm tries to ease the burden of its costly foreign LNG supplies.

It is the first time-swap agreement by GAIL, which is trying to juggle its LNG portfolio to cut costs for price-sensitive Indian customers after a sharp fall in Asian spot prices made its U.S. gas unattractive.

The deal equates to around 5% of India`s 2015/16 LNG imports and will support a government push to promote use of the cleaner fuel in fertiliser and the power sector, even as India`s local gas production is falling.

Gail`s share price rose as much as 2.5% after the news on Friday in a falling Mumbai market.

"Their (GAIL`s) exposure to U.S. is quite big. It is one of the major overhangs for GAIL. Signing a deal with Gunvor is positive as every $1 hit in U.S. LNG can potentially hit its revenue by $300 million," said Avishek Datta, an analyst at brokerage Prabhudas Lilladher.

Under the agreement, Gunvor will supply 15 cargoes or about 0.8 million tonnes of LNG to GAIL on India`s west coast between April and December this year in oil-linked prices on a delivered basis in India, two sources with knowledge of the deal said.

In return GAIL will sell 10 cargoes or about 0.6 million tonnes next year from Sabine Pass on the U.S. Gulf coast in 2018 at a premium to its pricing formula on a free-on-board (FOB) basis, they said.

The deal, priced at about a 12% slope to Brent, means GAIL could get gas from Gunvor at $6.50-$7.00 per million British thermal units (mBtu), the sources said, competitive with Asian spot prices and much cheaper than the cost of shipping its own U.S. gas to India.

"We are seeing spot deals (in India) for April deliveries getting finalised at slightly more than $6.50 (mBtu) so GAIL`s deal with Gunvor is at a very competitive rate," said an Asian LNG trader.

GAIL is saddled with long-term contracts to take expensive U.S. gas after embarking on a buying spree between 2011 and 2013 when the fuel was scarce and prices kept rising.

LNG booked by GAIL under a long term deal with Cheniere Energy, which owns the Sabine Pass Liquefaction terminal, will cost 115% of Henry Hub prices plus a fixed cost of $3 per mBtu. At current prices, this equates to a cost of about $8.50 per mBtu on a delivered basis to India.

GAIL was not immediately available for comment. Gunvor declined to comment.

The Indian firm has a deal to buy 3.5 million tonnes per annum (mtpa) of LNG for 20 years from Cheniere Energy and has also booked capacity for another 2.3 mtpa at Dominion Energy`s Cove Point liquefaction plant.

It has so far sold about 0.5 million tonnes of its LNG from the U.S. projects to Royal Dutch Shell, but has not been able to attract Indian customers despite repeated attempts.

"GAIL is in talks with more players to sell LNG from its U.S. portfolio," said one of the sources.

New Delhi wants to lift the share of cleaner-burning gas in its energy mix to 15% in the next three years from about 6.5% at present.

GAIL is also in talks with Russia`s Gazprom to delay and renegotiate a 20-year gas purchase deal undercut by low spot prices.