Indian Oil's LNG deal with ADNOC likely priced around 12.4% slope to crude oil

Indian Oil Corp.'s deal with Abu Dhabi National Oil Co. for the supply of 1 million metric tons per year for 15 years from the Ruwais LNG facility is likely priced around 12.4% slope to crude oil, sources told S&P Global Commodity Insights.

The deal, which has been in discussion since earlier in the year, was announced as part of Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan's visit to India on Sept. 9.

The deal is the third long-term contract signed by IOC in over one year.

IOC signed a 14-year deal for 1.2 MMt/y with ADNOC in July 2023 and 0.8 MMt/y deal with Total Energies. The supply through these deals is expected to begin in 2026 with the price around 12.6% slope to crude oil.

ADNOC and IOC declined to comment.

The new deal which was first reported at the end of February but announced in September is expected to begin in 2028, when the Ruwais LNG facility is expected to come online. It indicates that the pricing expected for DES India is expected to be lower for 2028 onwards as against 2026.

The deal also is seemingly lower priced than other ADNOC deals signed with counterparties for supply from Ruwais LNG. Most deals have been signed near a slope of around 12.6% while some deals are also in the range of 12.7%-12.8% with operational flexibilities for the buyer adding a premium for the buyer.

As per the free trade agreement between India and UAE, buyers of cargoes from ADNOC do not have to pay a 2.75% custom duty which indicates a saving of nearly 27 cents on a $10/MMBtu cargo.

Among the countries that export LNG and have a free trade agreement with India include Australia and Malaysia but does not include Qatar, the US or Oman presently.

Price reaction

Market participants in India noted that the deal priced around 12.4% slope to crude oil was high given that there were portfolio companies and trading houses willing to offer lower prices.

"There are offers that are lower in comparison to this (12.4% slope to crude oil) in the market so possibly there are other considerations as well," one of the Indian sources said.

For most term deals in Asia, LNG market participants use a crude oil "slope" formula as proxy pricing, in lieu of a spot price reflecting LNG fundamentals such as Platts JKM or the West India marker. Platts is part of Commodity Insights.

A fixed formula of 12.4% to the Dated Brent price of $73.995/MMBtu would imply a price of $9.175/MMBtu. This compares with the Platts WIM calendar year 2027 derivative assessment of $9.325/MMBtu at the Singapore close Sept. 13.

On Feb. 26, when spot LNG prices were at a lower range, WIM calendar year 2027 derivative assessment was near $8.90/MMBtu.

An Indian source said that the announcement of the deal was not from the companies but from the Abu Dhabi media office and then from India's Ministry of External Affairs indicating the political nature of the deal.

Meanwhile, Shell's deal with Arcelor Mittal Nippon Steel was priced at 11.5% slope to crude oil, partly due to flexibilities that Shell can exercise, for 500,000 metric tons supply beginning in 2027.

Torrent Power is also seeking 500,000 metric tons/year from 2027 and has received offers around 12% slope to crude oil, market sources said. The company has sought price offers linked to crude oil and Henry Hub.

Market participants said that the prices linked to Henry Hub offered to Indian buyers now are near 120% slope to Henry Hub plus a constant of around $4.2/MMBtu.

According to market participants, additional volumes that are expected to enter the market starting 2025 from North America and Qatar is expected to weigh on spot LNG prices.

Refinery demand

Market participants in India and globally also noted that 3 MMt/y LNG volumes signed by IOC is not necessarily for marketing the entire volume in India but should be seen from the company's own demand point of view.

Sources said that the demand from refineries would rise by the end of this decade. Paradip refinery can consume 0.8 million standard cu m/d presently but is expected to increase potential to 4.5 million standard cu m/d.

Similarly, Panipat refinery is expected to increase consumption to 7 million standard cu m-7.5 million standard cu m/d; Haldia refinery is expected to consume 2.5 million standard cu m/d by the end of this year or early next year, sources said.

After the construction of Indra Dhanush pipeline, the consumption for Guwahati and Bongaigaon refineries will switch away from using domestically produced gas to using RLNG, sources said. These refineries are likely to consume 1 million standard cu m/d each, sources said.

The eventual consumption of natural gas at these refineries will also be a factor of the price competitiveness against fuel oil and naphtha but the LNG deal prices are expected to make these volumes more competitive for usage in refineries, sources said.

Platts assessed WIM, the benchmark LNG price for cargoes delivered to West India, Kuwait and Dubai, for October at $12.825/MMBtu on Sept. 13.