India strikes LNG import deal with Qatar

Source: NDTV 9/27/2003, Location: Middle East

Saturday, September 27, 2003 (New Delhi): India is now all set to benefit from the first consignment of imported liquified natural gas (LNG) from Qatar. Qatar's RasGas will be selling gas to India, for the next 25 years at a non negotiable cost of Rs 4700 crore every year. Since the domestic supply of gas in the country fails to meet the demand, the imported gas is likely to benefit sectors like fertiliser and power.

Doubts over the deal

However, questions are now being raised over it being the best deal India could have struck. For almost a decade, RasGas a company jointly owned by Qatari government and American firm Exxon Mobil, has been pushing the deal wherein it sells 5 million tonnes of gas commonly used for making CNG and fertilisers. Under the contract, RasGas will supply 5 million tonnes of LNG to Petronet's Dahej unit, a consortium of Indian oil companies. In the shipment likely to land in January 2004, the import bill is pitched at $850 million every year (Rs 4,700 crore). Analysts are now beginning to question the price and the provisions of the contract. Sources allege that the deal is expensive as Petronet will only be able to sell the gas to Indian marketing companies like GAIL or BPCL at $3.4 per unit. However other players like Cairns or Reliance are selling to end consumers at the same price or even lower at $3.2 per mmbtu, making Petronet prices much more higher. "Competition will increase from local players like Reliance to imports from Shell. You have to be competitive," said Ram Naik, Union Petroleum Minister.

Stringent rules

Another reason why the deal is being questioned is because the contract seems too strict. If future competition drives down prices further, Petronet will not have the choice to re-negotiate the deal for the next 25 years. In what is being seen as a take-or-pay contract, even if no gas is sold in India , RasGas will have to be paid the entire $ 850 million annually. "All deals world over are take-or-pay because of the high investment involved," said Suresh Mathur, CEO, Petronet LNG. However, big gas buyers like Japan are now replacing take-or-pay contracts by spot contracts with no long-term commitments.

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