Tethys Petroleum Limited announced that TethysAralGas LLP, its 100% owned Kazakhstan subsidiary, has signed a gas sales contract for 2015 gas production.
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A one-year gas supply contract has been signed at a price of $75/mcm ($2.12 per 1,000 cubic feet) net of marketing and distribution costs effective January 1, 2015 representing a 42% increase over the current realised gas price.
This price has been realised despite falling oil and gas prices in Central Asia due to the impact of the fall in worldwide prices (Henry Hub spot price has fallen 30% to $108/mcm since December 1st, 2014). The achievement of the higher gas prices reflects the company's view that despite these recent influences, the general direction of gas prices is on an upward trend due to the increasing demand from China as it moves from a coal based economy to utilising more gas.
The company believes that once gas shipments commence to China through the already built gas pipeline, it may achieve further increases in pricing some time in 2015.
The gas supply contract has been signed between TethysAralGas LLP and KazTransGas JSC(KTG), for the Kyzyloi and Akkulka natural gas fields. KTG is the national State appointed gas operator under Kazakhstan gas law and any domestic sales of gas are effectively made through this state body. TAG will have the ability to export gas to China and other export markets once this option becomes available.
The gas supply contract is for annual volumes up to 100 million cubic meters at the increased net price of $75 per 1,000 cubic metres ($2.12 per 1,000 cubic feet) net of marketing and distribution costs, and runs through to December 31, 2015.
KTG has agreed that it will take any additional gas produced up to a total annual volume of 210 million cubic metres, but the structure of the contract also allows TAG to sell this additional gas outside of the contract should higher prices be achieved at a later date. This additional flexibility provides a significant advantage over the current contract under which all gas was committed for the whole year.
The prices have been agreed in Kazakh Tenge as all sales contracts in Kazakhstan are signed with the prices set in National Currency. Due to concerns of a possible devaluation in the Tenge in 2015 it was agreed that in the case of a devaluation by more than 10%, the Parties shall agree to meet within 10 working days and try to renegotiate the price of gas. ■