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As Australian prices rise, Exxon slashes price for Australian gas exported to India

As Malcolm Turnbull tells us that he is talking tough to gas companies in Australia, India just renegotiated a deal to take more of our gas for a cheaper price.

This article appeared yesterday in the Indian press under the headline ExxonMobil slashes LNG price to India in bad omen for producers.

India has won a price cut on a 20-year liquefied natural gas (LNG) deal with global giant ExxonMobil Corp in a rare contract renegotiation, a bad sign for producers in a heavily oversupplied global market.

In a trade-off for ExxonMobil, India’s Petronet LNG will increase its volumes from the Gorgon LNG project in Australia by an extra 1 million tonnes a year to about 2.5 million tonnes a year, but at cheaper rates than initially agreed in 2009.

Long-term contracts are rarely revised in the LNG market, and for a big producer to cave in shows how supply from new plants in Australia and the United States over the past two years has transformed the market, analysts said.

“This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets,” said Saul Kavonic, an analyst with energy consultants Wood Mackenzie.

India has been aggressive in seeking cheaper deals, also renegotiating a contract with Qatar in 2015, but the real pain for producers would come if major Asian buyers in Japan, Korea and China followed suit.

“Happy to share good news that India has, yet again been able to address the long term price issue of LNG from Gorgon to suit Indian market,” India’s oil minister, Dharmendra Pradhan, said on Saturday on social media.

Indian consumers would soon receive LNG at an “amicable price”, Pradhan said. India started receiving Gorgon supplies from January this year.

Petronet said in a stock exchange announcement on Monday it had reached a “broad understanding of terms” with ExxonMobil, without giving further details.

Citing market sources, RBC analyst Ben Wilson estimated ExxonMobil would receive 15 percent less revenue per unit on its sales to Petronet under the new deal.

If ExxonMobil had not agreed to renegotiate, Petronet might have scrapped the agreement, leaving the major to pursue damages and resell the volumes on a weak spot market.

“They’ve probably taken the lesser of two evils,” said Wilson, adding that it did not bode well for other LNG producers such as Australia’s Woodside Petroleum which has targeted India to diversify its heavy exposure to Japan and South Korea.

In a major shift from previous contractual terms, Exxon has agreed to absorb shipping charges, two sources with knowledge of the matter told Reuters.

The original LNG supplies would be priced at less than 14 percent of the Brent oil price, down from about 14.5 percent earlier, while the additional supplies would be priced about 12.5 percent of Brent, the sources said.

ExxonMobil, which controls about a quarter of the 15.6 million tonnes a year Gorgon project, had no immediate comment.

Analysts said the fact India had managed to force ExxonMobil to renegotiate was the latest proof that buyers have the upper hand in a market where LNG spot prices are well below oil-linked contract prices that were signed during the oil boom.

“The risk of price renegotiations will become more acute over the next couple years as spot LNG prices remain depressed, even if oil linked prices rise,” Wood Mackenzie’s Kavonic said.

“The elephant in the room will be how negotiations play out with traditional markets in Japan and Korea, and especially the Chinese national oil companies.”

 

This is the company who has paid almost no tax in three years on more than A$25 billion in revenues in Australia.

We are being used as patsies to prop up profits so the rest of the world can have cheaper gas.

As things stand, we would be far better off importing gas as the international price is a fraction of what the local producers are charging us for something we actually owned.


20 comments

  1. jim

    As things stand, we would be far better off importing gas as the international price is a fraction of what the local producers are charging us for something we actually owned. This thieving makes me blood boil Grrrrr.
    Here’s the economic genius of the LNP locking in the deal, PM – Thursday, 6 September , 2007 18:10:00
    Reporter: Chris Uhlmann
    MARK COLVIN: A single business deal signed today speaks volumes about the economic clout that Beijing now wields in Australia – a $35-billion agreement to supply China with liquefied natural gas.
    http://www.abc.net.au/pm/content/2007/s2026329.htm.

    and then there’s the LNP’s poles and wires deal under howard.

    As Australia becomes a leader in solar and battery power, our electricity bills will continue to skyrocket thanks to a massive over-investment in the network that we didn’t ask for and will never need, writes Jess Hill.

    http://www.abc.net.au/news/2015-11-10/hill-the-great-energy-con-that-is-costing-us-billions/6924272

  2. Terry2

    I hear AGL will agree to keeping Liddell open another five years from 2022 so long as they don’t have to start paying corporate taxes : Turnbull applauds compromise.

  3. Frank Smith

    And I suspect that the cost savings that would come from buying gas on the spot market may be behind AGL’s plan to spend $250 million on a gas IMPORT terminal at Crib Point rather than pay the high domestic price for Aussie gas.

  4. townsvilleblog

    As long as we Aussies don’t get cheap gas, after all just because it comes from our country/continent why should we see any benefit, it would be interesting to see how much income tax this corporation paid to our Australian government last financial year?

  5. townsvilleblog

    As lonjg as Australians pay more and Asians pay less that’s all that really matters to LNP govt’s.

  6. Kaye Lee

    For FY16

    On gross revenue of $11.15 billion they SAY they paid $609 million in tax until you look a bit closer

    “Australian tax contribution summary”

    For FY2016, AGL contributed a total of $609 million in taxes.

    Category of tax paid ($m) FY2016
    Income tax ($m) 222.7
    Net GST payable on taxable supplies ($m) 191.1
    Fringe benefits tax ($m) 3.4
    Payroll tax ($m) 28.3
    PAYG withholding ($m) 149.1
    Land tax ($m) 0.9
    Rates ($m) 10.4
    Stamp duty ($m) –
    Fire services levy ($m) 2.8

    This is a real misrepresentation. They should not be counting GST because that is paid by their customers. They should not be counting PAYG withholding because that is paid by their employees. Counting rates and fire service levy is also stretching the friendship. And FBT is usually due to some deal which made their wage bill less.

  7. Harquebus

    “As things stand, we would be far better off importing gas as the international price is a fraction of what the local producers are charging us for something we actually owned.”
    A cheaper alternative to produce CO2. Just what we need.

    Something that I read recently.

    “Geoffrey Supran and Naomi Oreskes found that at least 80 percent of the internal documents and peer-reviewed publications they studied from between 1977 and 2014 were consistent with the state of the science – acknowledging that climate change is real and caused by humans, and identifying “reasonable uncertainties” that any climate scientist would agree with at the time. Yet over 80 percent of Exxon’s editorial-style paid advertisements over the same period specifically focused on uncertainty and doubt, the study found.”
    https://theconversation.com/i-was-an-exxon-funded-climate-scientist-49855

  8. Kaye Lee

    “A cheaper alternative to produce CO2. Just what we need.”

    A transition source which produces far less CO2 than coal

    Life is an attitude H and as I have said countless times, every small improvement is a step towards a goal we will never reach. Keep moving forward or give up now because we can’t be perfect. We don’t have to eliminate emissions entirely, we just have to get back below the equilibrium tipping point. That may be impossible but every reduction helps buy us more time.

  9. Möbius Ecko

    “As things stand, we would be far better off importing gas as the international price is a fraction of what the local producers are charging us for something we actually owned.”

    AGL are planning to do exactly that. When they close down coal and replace it with gas and renewables, that gas will be imported.

  10. Icardo29

    I once suggested to a very senior federal public servant that politicians and government advisors should be able to be retrospectively prosecuted for making deals that were clearly against the public interest. Naturally he was aghast. And though my suggestion might have been a little tongue-in-cheek, the fact that deals like the one with Exxon, and all of those other resources deals where taxpayers have been ripped off and consumers gouged, have been given the ok by politicians, presumably on the advice of public servant negotiators, leads me to wonder why there is never any accountability for such dud decisions. It is not enough to say they get their just desserts at election time, when we know the MSM are complicit in a campaign of misinformation, Those who negotiated these deals should be named at least, if we can’t sue them. For example, did Mar’n Fer’son, now in the pay of the petroleum lobby, approve any of these deals when he was a Minister? Further, considering Exxon’s deal with India, how is it that negotiators acting on our behalf are so incompetent?

  11. Harquebus

    Kaye Lee
    Actually, eliminating CO2 production entirely is something that we do have to do but, as you often state, such things are unrealistic in our current political environment and unlikely to happen.
    If we did manage to eliminate all CO2 production immediately, we would still be in for decades of warming due to the long time lag between emissions and consequences. What CO2 we put into the atmosphere today worsens those consequences and some are already in motion.
    Time we do not have. 30 years ago, even before, it was time.

    “That may be impossible but every reduction helps buy us more time.”
    Except when it comes to making babies. We can’t get enough new CO2 emitters.

  12. Kaye Lee

    I agree about the time lag but we can’t start yesterday so the best we can do is start today.

    Once again, as I have said a thousand times, educate and empower women and reduce poverty rates and fertility rates will decline. The older girls start breeding, the more the impact. Educate them and employ them and give them reproductive rights over their own bodies. No need for draconian intervention. Oh and religions should give up the idea that every sperm is sacred.

  13. Frank Smith

    At the risk of being pedantic, we would indeed dramatically reduce anthropogenic global warming by “eliminating CO2 production entirely” as that would necessitate eliminating all humans since every breath we expel produces CO2.

  14. Anon E Mouse

    So if they can renegotiate contracts, it is high time Australia renegotiated the dodgy deal so that we pay less for the gas, and that the companies actually pay tax to Australia.

  15. Andrew J. Smith

    Don’t know where to start with our fossil fuel and auto compromised influence on political parties, all levels of govt., think tanks, environmental and immigration policy; after generations global subsidiaries have become public infrastructure with socialist like support while demanding everyone else competes under neo-liberalism.

    Unlike investigative journalism and news reporting in Australia that stops at our borders, US based media and academia have investigated Exxon and it’s other manifestations present and past in detail due to freedom of speech (and ignoring astroturfing and PR).

    Just last year various Rockefeller Foundations announced they were divesting from Exxon Mobil due to ‘global warming’ but IMO it was seeing future income streams around fossil fuels declining… independent journalists allege that was only publicly known investments were divested.

    Many don’t realise that Exxon Mobil was spawned by Standard Oil founded by well known environmentalist, philanthropist and population or human biology obsessive, JD Rockefeller, as a result of trust busting laws to break up a significant oil monopoly that was Standard Oil (investments were then spread across several fossil fuel companies in the US).

    There are some excellent references to Rockefeller’s et al. by JK Galbraith (The Age of Uncertainty) and Daniel Yergin’s ‘The Prize’ i.e. history of fossil fuel and the related oligarchs, especially their business ethics. In Australia according to Wikipedia Exxon subsidiary has supported the IPA https://en.m.wikipedia.org/wiki/Institute_of_Public_Affairs many local governments are part of the Rockefeller Foundation ICLEI network https://www.rockefellerfoundation.org/our-work/grants/iclei-international-council-for-local-environmental-initiatives-local-governments-for-sustainability-south-asia/ and also Melbourne and Sydney Councils are part of their Resilient Cities network whereby globally they fund related positions ‘inside’ local government.

    Of course ‘sustainability’, ‘limits to growth’, etc. are constructs related to and supported by the ‘liberal’ and environmental’ Club of Rome, sponsored by VW and Fiat, hosted on the Rockefeller estate (of course zero population/economic growth movements were also supported by Rockefeller and Ford Foundations).

    Like any global player it is probably tempting, once a subsidiary beds itself into a monopoly or oligopoly position, it does not want to deal with govt. regulation, taxes and other international competition. What’s the solution for them? Maybe discourage ‘globalisation’ and neo-liberalism for a strong nation state while encouraging socialism for big corporates but neo-liberalism for the other 99%, aka Australia?

  16. Zoltan Balint

    LPG is not LPG. LPG is made up of various parts and the two main ones are Butane at about 20psi and Propane at about 70psi. If Indea asked for higher Propane content what Exxon would leave for Australia is Butane. Butane is less effective as it producess less energy and thus your car runnining on gas would be less efficient. The same goes for house hold use like cooking and heating. This happened about 15 years ago and Australians were not told, so for the same cost we got less bang for our buck.

  17. Harquebus

    Zoltan Balint.
    I did not know that. Thanks.

  18. Zoltan Balint

    No problem. For anyone running a car on gas the way you can tell if you are getting good gas is the time it takes to fill up your tank. If slow you are getting bad gas and you car will run slower as well. Butane and propane are not the same price guess which one is which.

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