LNG Facility_Lusby Md
Snow covered transfer lines (C) are seen leading to storage tanks (rear)at the Dominion Cove Point Liquefied Natural Gas (LNG) terminal in Lusby, Md., on March 18, 2014. Reuters/Gary Cameron

India’s largest state-owned gas company GAIL India Ltd. (BOM:532155), which current sources liquid natural gas through long-term contracts from Qatar, will be able to sell LNG at a cheaper rate following the signing of a new contract with a U.S.-based company, Press Trust of India, or PTI, reported Sunday.

New Delhi-based GAIL has decided to buy 3.5 million tons of LNG for the next 20 years from Texas-based Cheniere Energy Inc’s Sabine Pass terminal in Louisiana. GAIL plans to trade the gas via its Singapore arm and offer the remainder to the Indian market at a lower price. Gas prices have fallen to $4.7 a unit at the U.S. benchmark Henry Hub distribution network, and GAIL plans to sell the gas it obtains from there at a price between $12 to $13, after adding shipping and other charges.

“We had recently signed LNG procurement contracts from the US indexed to Henry Hub prices. We are offering the same Henry Hub indexation price to customers in India,” GAIL’s chairman B.C. Tripathi said, according to PTI, adding: “It (GAIL’s offering price) will certainly be less than $13.”

Sabine Pass, which is one of three LNG companies in the U.S. with a permission to sell gas to countries without a free trade agreement, agreed to trade its gas with India, which has not signed an FTA with the U.S., but has been lobbying for it, Times News Network, a local news agency reported. Typically, Indian oil companies have procured gas priced at $13.8 from Qatar through long-term contracts.

Tripathi said, according to PTI, that the supply of gas from the U.S. is expected to begin from 2017 and added that he was confident that GAIL will be able to book all the U.S. volumes in the next three months by offering Henry Hub-indexed rates. GAIL has also booked an annual capacity of 2.3 million tons at the Cove Point LNG liquefaction terminal at Lusby, Md., PTI reported.

“GAIL has an internal requirement of about 1 million tonnes a year and we are hopeful of tying up customers for the remaining 2.5 million tonnes,” he said, according to PTI.