Costlier Petronet gas to dig a hole into fertiliser, power sectors pockets

Written by Anupama Airy | New Delhi, Aug 7 | Updated: Aug 8 2008, 05:37am hrs
Power and fertliser companies purchasing re-gasified LNG from Petronet LNG Limited (PLL) should gear up to pay $3-4 per million metric British thermal unit (mmbtu) more from January next year.

This is because PLLs price contract with its customers, including the Ratnagiri power project, to sell gas (R-LNG) at a uniform price of $4.8 per mmbtu and a delivered price of $5.83 per mmbtu (after including re-gasification, transportation and taxes) comes to an end in December 2008.

The new delivered price of R-LNG for PLLs customers is estimated to range anywhere between $8.5 and 9 per mmbtu or even higher.

PLL currently sells 24.5 million metric standard cubic meters of gas per day to its consumers in the share of 46% to fertiliser, 37% to power and 17% to others, including petrochemical and LPG units.

The R-LNG being sold by PLL is currently being imported under two separate contracts with RasGas of Qatar. The first is a long-term contract for 25 years, where PLL is importing 5 million tonne a year (equivalent to 18 mmscmd of gas a day) of LNG.

The other contract (essentially entered for meeting the gas requirements of the Ratnagiri power project) is for 1.5 mtpa of LNG.

The term of this contract is for one year and ends on September 2008.

The price of gas under the first contract (signed in 2004) has been agreed at a fixed price of $3.54 per mmbtu (excluding re-gasification, transportation and taxes) for a period of 5 years, which ends in December 2008. Thereafter, although RasGas will continue supplying LNG to PLL for the next 20 years but the price of gas will shift from the fixed price regime to a formula-based pricing.

The new price of gasunder this formulais linked with the average price of Japanese crude cocktail (JCC) in the last five years. As a result of this shift, the price of LNG will move up from the existing $3.54 per mmbtu.

As against the first contract, the price of LNG procured by PLL under its second (short-term) contract with RasGas is much higher at $8.5 per mmbtu.

However, the supplies of R-LNG from PLL to all its consumers are made at a uniform price of $5.83 per mmbtu (including re-gasification, transportation and taxes)which has been arrived after pooling the prices of LNG procured by PLL under the two contracts with RasGas.

This was done under a directive from the government in March 2007, essentially to bring down the cost of gas supplies to Ratnagiri power project. As a result, supplies of R-LNG from PLL to all its consumers are currently being made at a uniform pooled price of $5.83 per mmbtu. It is this delivered price of LNG which will go up by $3-4 per mmbtu from January 2009.

PLL is currently engaged in discussions with RasGas for renewing its second LNG contract for 1.5 mtpa.

It may be noted that whatever be the price of LNG procured by PLL under the contract (other than spot cargoes), it will be pooled with the existing LNG price.

In addition to these two contracts, PLL also has another LNG contract with RasGas for 2.5 mtpa. Supplies under this contract will commence from December 2009.

Asked to comment, petroleum ministry officials said although the new price would be substantially higher than the existing price of $5.83 per mmbtu, this needs to be seen in the light of the ruling spot LNG prices of around $14-18 per mmbtu.

Following an unprecedented spurt in crude oil and gas prices, PLL has stopped buying spot LNG cargoes for over a year now.

In contrast, Royal Dutch Shell continues to procure spot LNG cargoes at prices close to $16-18 per mmbtu for re-gasification at its Hazira terminal and there are buyers for the fuel even at this price.

On the other hand, Reliance Industries Limitedwhich has stuck huge gas finds in its D6 block in the KG basin is expected to start gas production from September this year and the price of gas (minus the transportation and taxes) will be $4.2 per mmbtu for a period of five years. RIL is expected to initially sell around 40 mmscmd of gas, taking it up to 80 mmscmd.

However, a substantial part of RILs initial gas production is currently under litigation with NTPC and the Anil-Ambani promoted Reliance Natural Gas Resources (RNRL).

Both NTPC and RNRL have staked claims over the entire initial quantity, thereby restricting RIL to sell this gas to other consumers.