Qatar to halve gas price for India as global rates slump

In a diplomatic victory, India has got Qatar to agree to a slashing gas price by about half to match a slump in global energy rates, helping the nation save billions of dollars, as well as get a waiver from Rs 12,000 crore liability for short-lifting of gas.

India, which got $15 billion of benefits during first 11 years of the term contract with Qatar beginning 2003 by way of enjoying low gas prices when world energy rates were rising, will pay $6-7 per million British thermal unit for 7.5 million tonnes a year of Liquefied Natural Gas (LNG) it buys from RasGas of Qatar.

This is against $12-13 per million British thermal unit rate India pays presently, Oil Minister Dharmendra Pradhan told reporters.

"In the changed economic scenario worldwide where oil prices have slumped to multi-year lows and gas prices have fallen, India felt it should not suffer," he said, adding Petronet LNG Ltd (PLL) - the firm that buys gas from RasGas, has signed a revised agreement to reflect a pricing change.

The revised formula will base the price on a three-month average figure of Brent crude oil, replacing a five-year average of a basket of crude imported by Japan, with a rider that PLL buys an additional 1 million tonnes of LNG annually.

The trailing three-month average Brent price is about $44 a barrel, while the average of Japan Crude Cocktail for the 5-year period ended September 30 was $94.

Pradhan said Qatar will also not seek Rs 12,000 crore from PLL for 'under-lifting' LNG from RasGas by 38%.

The value of the under-lifted cargoes in 2015 is Rs 12,000 crore and the new formula will suggest a $2.5 billion buyer saving over three years.

Pradhan said the need to renegotiate the signed contract was first raised by Prime Minister Narendra Modi when Emir of Qatar Tamim Bin Hamad Al Thani visited India in March.

As many as 51 meetings followed to arrive at a renegotiated formula, he said. "Qatar has been a good business friend of India. We need to move away from buyer-seller relationship to a long-term strategic partnership," he said.

This is probably the first deal after a slump in energy prices that Qatar agreed to reduce prices. It marks Modi government's biggest diplomatic win in the energy sector since coming to power last year as New Delhi leveraged its position was as one of the world's biggest energy consumers to strike better bargains. 

PLL CEO and Managing Director Prabhat Singh said India is the best market available for Qatar as the net back price the exporter gets is better than selling gas to Europe or Japan.

"They get the best value here. This market if you lose, you lose it forever," he said explaining what went behind the renegotiation.

He said the fertilizer sector, which bought about one-third of the 7.5 million tonnes a year of Liquefied Natural Gas (LNG) imported from Qatar, will save Rs 12-13 crore per day.
"Savings from fertiliser sector alone will be about Rs 4,700 crore," he said.

The volumes India did not take under the long-term contract as gas was available at a cheaper rate in the spot or current market, will be adjusted over the remaining tenure of the 25-year contract ending April 2028, he said.

The additional one million tons supplies will run concurrently with the current contract, he said.

Quantities not taken this year will be bought during the remaining term of the contract, PLL and RasGas said in a joint statement.

During the first three-quarters of 2015 calendar year, PLL took 32% less volumes, but in the fourth-quarter more users switched to cheaper supplies bought on the spot market.

State-owned GAIL India, Indian Oil Corp (IOC) and Bharat Petroleum Corporation Limited (BPCL) have committed to buying all of the 7.5 million tonne a year of LNG that Petronet is to import from Qatar. But with a slump in global prices, they have opted to buy gas from spot market rather than use the long-term LNG.

The price of delivered spot LNG delivered has tumbled more than 50% in the past year to about $6.80 per million British thermal unit.

GAIL takes 60% of the 7.5 million tonnes of LNG imported from Qatar, while IOC takes 30%. BPCL buys the remaining 10%.

For the additional 1 million tonnes, GAIL, IOC and Gujarat State Petroleum Corporation (GSPC) have committed to buying 30% each and remainder 10% will get to BPCL.  

"RasGas Company Limited, Qatar and Petronet LNG Limited, India are pleased to announce that they have entered into a binding sale and purchase agreement (SPA) for supply of an additional 1 million tonnes of LNG to India starting in 2016 for onward sale to four Indian entities, i.e. IOC, BPCL, GAIL and GSPC," the statement said.

Also, the two "have entered into a binding agreement to adjust some aspects of their existing long-term LNG SPA of 7.5 million tonnes, signed by the parties in 1999, which laid the foundation for the LNG business in India."  

"Such adjustments will protect and preserve the overall value of the contract. As per such agreement, LNG volumes not taken by Petronet from RasGas during 2015 will be taken and paid for by Petronet during the remaining term of the SPA and will maintain its current level of oil indexation with the oil index more closely reflecting the prevailing oil prices," it said.

Commenting on this event, RasGas CEO Hamad Mubarak Al-Muhannadi said, "These positive developments, including the new SPA, demonstrate the strength of our long-term relationship with Petronet and commitment to growing sales into India to meet its expanding clean energy needs." Singh said, "These developments highlight both parties confidence in the Indian market and our commitment to LNG as a cleaner, more efficient source of energy".