India’s Petronet LNG has reworked its long-term gas deal with Qatar’s RasGas that will halve the import price of natural gas.
In a sign of the balance of power shifting to the gas consumers, RasGas has also agreed to waive Petronet’s penalty of $1.81bn (₹120bn) for buying lower than the contracted amount.
Petronet, the biggest Indian gas importer, had been coerced to buy LNG last year at one of the most expensive rates in the world due to a 25-year contract that didn’t quickly reflect the global decline in energy prices.
While spot LNG prices have fallen to $6.7 per unit, Petronet had to purchase LNG at $12-13 per unit under the contract.
After months-long negotiations, which saw Qatari Emir His Highness Sheikh Tamim Bin Hamad Al Thani, Indian Prime Narendra Modi and Indian Oil Minister Dharmendra Pradhan intervene, RasGas has now settled import prices for Petronet at $6-7 per unit from January.
“It’s no more a buyer-seller relationship. We are now advancing towards a partnership,” Pradhan said.
It took 51 meetings for the two companies to agree on the deal that was clinched on November 10, Prabhat Singh, CEO of Petronet said, adding that the fine print of the agreement got settled in the following weeks.
“For me, the issue was to communicate it to them that I am not talking about my market, I want to preserve your market here,” said Singh on the challenges faced in the negotiations. “The economics will drive the customer and if it drives him to an alternative source or an alternative fuel, fear is you have lost him forever,” he said.
Singh said that India has been a ‘very credible buyer’ and no party would have liked to lose such a customer.
A supply glut in the gas market and the bleak prospects for suppliers helped bring RasGas to the negotiating table with the Indian firm that absorbs nearly one-tenth of the Qatari firm’s supplies.
As part of the concession from the Indian side, Petronet has agreed to purchase an additional 1mn tonnes of LNG annually from RasGas, taking the total contracted volume to 8.5mn tonnes.
The price formula for this additional volume will be different from the one for the previously-agreed volume. The additional volume will be further sold to Indian oil and gas companies including Indian Oil Corp, Bharat Petroleum Corp, GSPC and GAIL.
Under the long-term agreement with RasGas that lasts until 2028, Petronet is obliged to purchase 7.5mn metric tonnes of LNG annually. It also has to pay for the entire amount every year even if it has bought less under the ‘take-or-pay’ obligation.
In 2015, Petronet lifted just 62% of the contracted volume and therefore would have had to pay for the balance amount worth $1.81bn. This has now been waived and the respective volume can now be adjusted during the rest of the contract term.
