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Brinkmanship by GAIL-I: Opponents are more powerful than itself
Aug 09: The fact that GAIL is seeking renegotiations of the long term LNG supply terms with its US and Australian suppliers is something to watch out for.
8All suppliers are likely to resist a price renegotiation. A signed deal is held sacrosanct and the covenants can only be changed mutually. If like GAIL, all buyers were to seek renegotiation of signed contracts, all hell will break lose in the LNG market.
8GAIL's ability to maneuver a price revision will depend entirely on whether it can garner support from other off takers from the terminals in which the gas major as supply agreements. Or it may well risk becoming a pariah. 
8The Americans are unlikely to take kindly to GAIL's plea as they have back-to-back arrangements with their financiers against gas offtake and fixed price elements of their contracts with buyers and any price revision will upset this fragile equilibrium.
8According to reports, GAIL wants the fixed portion of their US cargoes to lowered to around USD 7-8 per mmBtu as against the present USD 9.7. This is far too deep a price cut for any supplier to agree to.
8If negotiations fail, it will end up in ugly litigation, which will be a big loss of credibility for GAIL.
8GAIL will have more leverage in getting a discount from Gorgon LNG, as the price of gas is indexed at 14.5 per cent of prevailing oil rate, which is arguably very high and there is scope to bring it down.
8Can GAIL walk away from these deals?
8The pros of cons of reneging on the deals may have occurred to GAIL. Weighed against punishing litigation is the prospect of containing a splurge of red ink on its balance sheet from next year onwards.
8Overall, GAIL will be playing a dangerous game against opponents which are more powerful than itself
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