Qatar has agreed to supply 4 million tonnes of additional liquefied natural gas (LNG) to India, but at more than double the rate of Reliance Industries’ KG-D6 gas.
The world’s largest LNG exporter, which currently sells 7.5 million tonnes of LNG every year, is seeking a price linked to crude oil that at prevailing rates comes to over USD 10 per million British thermal unit.
“The proposal is for supply of 0.3 million tonnes of LNG this year, 0.5 million tonnes in 2011, 2.5 million tonnes in 2012 and 4 million tonnes from 2013,” Petroleum Secretary S. Sundareshan told reporters here. “This is, of course, subject to price negotiations which we will enter now.” he said.
Qatar wants to divert cargoes it had committed to the US and Europe to Asia at a better price. Qatar’s agreement with the US provides for a clause where it can divert LNG to other markets if it realises a better price. Henry Hub price of gas, the pricing point for natural gas futures contracts in the US, is currently between USD 4 and 4.2 per mmBtu.
“RasGas (of Qatar) and Petronet LNG/GAIL India will engage in discussions on pricing and I hope in the next few weeks they can finalise agreements,” Qatar Deputy Premier and Minister of Energy and Industry Abdullah Bin Hamad al-Attiyah, who had last night discussed the issue with Petroleum Minister Murli Deora, said.
The additional supplies would be “long-term, typically 15-20 years,” he said.
Sundareshan said the supplies are being discussed for import at Petronet’s Dahej terminal in Gujarat and the yet-to-be commissioned Dabhol import facility in Maharashtra.
India is, however, sceptic of the offer as the asking price is too high. Qatar is seeking a price of 13.5-15.5 per cent of Japanese Crude Cocktail-the average price of customs-cleared crude oil imports into Japan- while New Delhi was looking for a fixed price, like the current sweetheart deal.
The price is finding some resistance in India from certain quarters that consider it “too high”. The rates quoted are almost the same as Petronet’s Gorgon LNG deal but they say these rates are for supplies beginning immediately while the Australian LNG would arrive in 2014.
“Any LNG arriving at Dabhol will have to compete with Reliance Industries’ (eastern offshore KG-D6 field) gas that is priced at USD 4.2 per mmBtu (delivered rate of USD 6.67 per mmBtu),” an official in the Petroleum Ministry said. Compared to this, the imported cost of Qatar LNG would be USD 10.4 per mmBtu (at USD 80 a barrel oil price). After including import duty of 5 per cent, shipping cost, regassification, local levies and transportation charge, the delivered price would be USD USD 13 per mmBtu.
Qatar, which has the world’s third largest reserves of gas, in the five years to December 2008, sold LNG to Petronet at USD 2.53 per mmBtu. From January 2009, this price was linked to moving average of international oil rates and is currently priced at USD 7 per mmBtu ex-terminal.
Attiyah cited Chinese to influence India into buying his LNG. He said Qatar had signed with China for 12 million tonnes of LNG, mostly diverted from the US and the UK.
The price at which Chinese have imported is not known but industry sources said it cannot be more than 10-11 per cent of JCC. Even at 11 per cent, the LNG would cost USD 8.8 per mmBtu.
“We came to the rescue when India faced shortage (in 2008 and 2009),” he said, adding Qatar was willing to meet any demand that New Delhi had.
Qatar, which was facing surplus LNG after its principal importers the US and Europe cut demand, diverted almost 1.5 million tonnes of LNG in 2008-09 to meet fuel the requirement of the Dabhol power plant.
Qatar is bringing online two more plants with 15 million tonnes of LNG production capacity that would raise its output to 77 million tonnes a year, he said.
The LNG cannot be imported at Petronet’s Kochi terminal as it would be ready only in 2012.
Petronet’s current 10 million tonnes a year capacity at the Dahej terminal is chocker blocked. “We have 7.5 million tonnes of LNG (of the long-term contract) arriving from January. The remaining of the capacity has been locked for supplies that have been contracted by power and fertilizer plants in North India,” a company source said.
So Dabhol, which is almost ready for commissioning, is the only viable option for import. However, the adjacent 2,150-megawatt power plant, the largest gas-fired electricity generator in India, will not use any of the imports from Qatar. Its fuel supplies have already been tied-up from Reliance.
Petronet plans to supply gas from the 2.5 million tonne-a-year Kochi LNG terminal, which will be commissioned in 2012, and may expand capacity at Dahej to 15 million tonnes a year.
Gail and its partners aim to expand the yet to be operational Dabhol terminal to 5 million tonnes a year. But it would happen not before 2014 while Qatar is ready to supply immediately.