IN what would bring down the input costs for a cross-section of Indian industry, Qatar’s RasGas has halved the price of liquefied natural gas (LNG) supplied to India’s Petronet LNG for the residual period of a 25-year contract signed in 1999. Besides, the world’s biggest LNG supplier has also agreed to waive penalties of Rs 12,000 crore estimated earlier for New Delhi’s failure to lift the entire contracted quantity of 7.5 million tonnes of LNG in 2015.
Domestically produced natural gas is currently priced at $4.24 per million British thermal units on a net calorific value basis, thanks to an 18% cut that came into effect from October 1.
According to the deal struck on November 10, Doha and New Delhi would also top up the LNG contract by an additional 1 million tonnes starting January 2016.
The deal marks Prime Minister Narendra Modi’s biggest diplomatic win in the energy sector since he came to power last year, according to political observers and industry analysts. He has been trying to leverage India’s position as one of the world’s biggest energy consumers to strike better deals with world’s leading energy suppliers.
Thanks to the deal, the Qatar gas would now cost around $6-7 per mBtu compared with $12-13 per mBtu prevalent in 2015, said petroleum minister Dharmendra Pradhan. The annual benefit to India due to the price cut would be around R4,000 crore, Pradhan added. While LNG is used by power companies as fuel, it is a feedstock for fertiliser, petrochemical and sponge iron units and is also used by city-gas firms and LPG bottling units.
The minister said the deal materialised thanks to the prime minister discussing the matter at least three times with the Emir of Qatar Tamim bin Hamad Al Thani.
The new price, which was arrived at after 51 rounds of bilateral meetings, would be linked to that of international crude oil and move in tandem with Brent. Currently, Brent crude is 33% cheaper than it was in the beginning of the current fiscal, which could translates to cheaper LNG supplies. For a customer here, the price would be reviewed every month. In addition to the landed cost of the LNG, the end consumers pay regasification charges (60-65 cents), transportation tariff (50 cents to $1.50) and other state levies such as VAT and entry tax for every mBtu of the fuel.
Barring Gujarat State Petronet, stocks of Petronet LNG, GAIL, Indian Oil Corporation and Bharat Petroleum gained in the range of 0.44% to 3% after the announcement.
Petronet LNG advanced 3% to end at Rs 254.85. GAIL rose 2.18%, while IOC ended up 0.74%. BPCL gained 0.44%. The Sensex closed with a gain of 0.61% on the last day of the year.
“We have aligned (the price) to the international oil market,” said Prabhat Singh, managing director and CEO of Petronet LNG. The fertiliser sector would be the biggest beneficiary of the renewed deal, which would reap benefits to the tune of Rs 10,000 crore in the next three years.
The pricing for the existing 7.5 million tonnes a year (mtpa) supplies and the new contract 1 mtpa would slightly differ. Earlier, the pricing was based on take-or-pay basis and linked to 60-month average of crude oil. The buyers of Qatar gas includes IOC, BPCL, GAIL and GSPC. Due to higher price and no takers in India, Petronet procured only 62% of the 7.5 mtpa supplies in 2015.
The total 8.5 mtpa supplies from Qatar under the two long-term contracts would translate to about 136 cargoes. Petronet ferries the gas using its own ships and pick up the gas from Qatar’s shore on FOB (free on board) basis.