Australia, India Set to Strengthen LNG Ties

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Researched by Industrial Info Resources Australia (Perth, Australia)--Oil and gas company Woodside Petroleum's (ASX:WPL) (Perth) decision to sign a memorandum of understanding (MOU) with Indian conglomerate Adani Enterprises (BSE:512599) (Gujarat, India) in January indicates Woodside's recognition of the liquefied natural gas (LNG) boom, which is predicted to take place in India during the next few decades.

The MOU was signed at a ceremony in the Indian province of Gujarat. It was attended by high-level officials, including Australian Trade and Investment Minister Andrew Robb. Although the MOU is non-binding, it will set the scene for cooperation between Woodside and Adani on technology transfer and the identification and development of future LNG projects.

Adani is one of the largest energy companies in India, and its on-ground resources will allow Woodside to expand its access to the Indian energy sector. Demonstrating its ambitions to expand its involvement in LNG, Adani is developing plans with Gujarat State Petroleum Corporation (Gujarat, India) to construct a 5 million-tonne-per-year LNG import terminal in Gujarat, which is expected to become operational by December 2016.

In 2014, India imported 13 million tonnes of LNG, most of which came from Qatar. This figure is expected to rise to 15 million tonnes per year by the end of 2015. Some analysts are predicting that India's demand will increase to 35 million tonnes per year by 2025, due to rapid urbanization and electrification throughout the country.

At present, the only arrangement for India to buy LNG from Australia is Petronet LNG Limited's (BSE:532522) (New Delhi, India) 20-year agreement with Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) to purchase 1.44 million tonnes per year of LNG from Chevron's (NYSE:CVX) (San Ramon, California) $54 billion Gorgon project, which is expected to produce its first gas by June 2015. Under the 2009 agreement signed between Petronet and Exxon Mobil, LNG will be sold at a price equivalent of 14.5% of prevailing oil rates. Analysts have identified projects, such as the $40 billion Browse floating liquefied natural gas (FLNG) proposal, as potential supply sources for Woodside to sell LNG to India in the future.

The main concern with proposals like Browse is that falling oil and LNG prices are exerting a massive strain on Australian LNG producers. Proposals like Woodside's $40 billion Browse LNG venture are at risk of missing financial approval if oil prices don't improve. According to Industrial Info, Woodside already has postponed the date of its final investment decision from mid-2015 to mid-2016.

Nevertheless, it is likely that oil and LNG prices will become more favorable once global growth increases and absorbs the current oil glut. Many analysts believe that it will be at least a decade before Australian LNG producers like Woodside become involved in India, by which time oil and LNG prices are likely to have increased.

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