Indian Oil signs second long-term LNG deal with France's TotalEnergies

This week, state-run Indian Oil Corporation Ltd signed a long-term contract with French energy giant TotalEnergies in France for supply of LNG (liquefied natural gas), two people aware of the development said. Under the contract, TotalEnergies would supply 1 million metric tonne per annum (mmtpa) of LNG to IOCL for a period of around 10 years.

This is the second long-term contract between the two companies in the past one year. Last July, they had signed an agreement for supply of 0.8 mmtpa of LNG.

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Around the same period last year, the public sector refining and marketing major also signed an agreement with Abu Dhabi National Oil Company (ADNOC) for supply of 1.2 mmtpa of LNG starting 2026.

Queries mailed to IndianOil and TotalEnergies remained unanswered till press time.

Eyes on long-term contracts

The push for long-term contracts has gained momentum after the gas market witnessed volatility in 2022 due to the Russia-Ukraine war. The prices had soared in 2022 amid the crisis, leading to Gazprom defaulting on its long-term contract with another state-run major GAIL (India) Ltd for about a year starting May 2022. This happened as Gazprom’s German subsidiary found it lucrative to sell its produce in the spot market rather than fulfilling contractual commitments.

Now, all Indian PSUs dealing in gas, such as IOCL, GAIL, and Petronet LNG have been looking out for long-term contracts to ensure adequate availability of gas and avoid purchases in the volatile spot markets.

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On similar lines, Petronet LNG extended its contract with QatarEnergy LNG in February by signing a long-term deal for buying 7.5 million tonnes of LNG per annum.

"The gas market is expected to witness a glut starting 2026 with the US and Qatar ramping up their gas liquefaction capacities and that is when most of the long-term contracts would come into effect. India has a lot of appetite and that is why it is still looking for long-term contracts," said Prashant Vasisht, senior vice president & co-group head, corporate rating, ICRA Ltd.

Gas prices down

"Gas prices are relatively lower now as demand for both the Europe and China has somewhat declined. Even during the last winter, they did not rise as the winter was warmer than expected," he added. Spot prices of natural gas currently stand around $10 per mmbtu (metric million British thermal unit). Prices had touched $50-60 mmbtu in 2022 at the height of the energy crisis due to the Ukraine war.

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India is a net importer of natural gas and imports about 55% of its total gas requirement. According to the Petroleum Planning and Analysis Cell (PPAC), India’s LNG imports increased 17.5% year-on-year in FY24 in terms of volumes to 30,917 million standard cubic metre (mmscm). That figure equates to about 23.5 mmtpa.

However, despite increase in import volumes, India's gas import bill fell 22% to $13.3 billion from $17.1 billion in FY23 due to the global fall in prices.

India's gas consumption (including LNG, CNG and PNG) increased 11.1% on year in FY24 to 66,634 mmscm aided by fertilizer, power, and city gas distribution sectors.