Iran hikes price for additional LNG supplies

New Delhi, Aug 2 | Updated: Aug 3 2005, 05:30am hrs
Close on the heels of its $22 billion deal with India for sale of 5 million tonne per annum (mtpa) of LNG, Iran is now seeking substantially higher price for selling additional 2.5 mtpa of liquified gas.

In contrast to its earlier ceiling of $3.22 per million metric British thermal unit (mmbtu) at $31 per barrel of Brent crude (for 5 mtpa), Iran is now seeking $3.54 per mmbtu at $40 per barrel Brent with a 1.5% annual increase in the ceiling price for the full contract term of 25 years.

This, as per officials, will translate into a FOB price of $4.1 per mmbtu at a Brent price of $50 a barrel and $4.5 per mmbtu for a price of $57 a barrel. After adding the customs duty element ($0.18 per mmbtu), re-gassification cost ($0.35 per mmbtu) and transportation cost ($0.30 per mmbtu), the delivered price of LNG will then vary between $4.93 per mmbtu to $5.33 per mmbtu.

As against this, the delivered LNG price under the existing 5 mtpa LNG deal with Iran comes to $ 4.05 per mmbtu.

Thats not all. Iran has also proposed changes in two major commercial terms for selling this 2.5 mtpa LNG to India. This relates to the take-or-pay liability for 98% of the contracted quantity (as against 95% for the signed contract) and equity participation of only upto 5% (as against the earlier 10%) to the buyers in the LNG liquefaction company.

A team of Indian officials, who visited Tehran last week, to finalise the tie-up of 2.5 mtpa LNG failed to break the deadlock on the price front.

Sources said the offer of $3.54 per mmbtu at $40 a barrel of Brent was also valid only till July 26. With no headway in talks, Irans offer remains at $3.6 per mmbtu at $40 per barrel of Brent, with a 2% annual increase.

The Iranian side was completely inflexible in its approach and maintained that the prices quoted reflect the thinking of its new leadership which feels that the LNG ceiling price should capture the rising crude prices , a senior ministry official said.