Pradhan presses Qatar for LNG price cut

Oil Minister Dharmendra Pradhan has pushed for a reduction in liquefied natural gas (LNG) prices by Qatar, India’s largest supplier, to be in sync with the decline in global rates over the past one year.

He made the plea when he called on Qatar’s Energy Minister Mohammed Saleh Abdullah Al Sada on the sidelines of the 6th OPEC International Summit in Vienna on June 4, official sources said.

The Qatari Minister, they said, was sympathetic to the Indian cause, but wanted the issue to be negotiated between the companies concerned. Qatar sells LNG at a price linked to the previous 12-month Japan Crude Cocktail (JCC), including caps and floors based on average JCC prices of the past 60 months. While this formula cuts down volatility, it does not reflect price falls as much as spot pricing.

India buys 7.5 million tonnes a year of LNG on a long-term 25-year contract, indexed to the moving average of crude price. The price of LNG from Qatar comes close to $13 per million British thermal unit compared with the $6-7 in the spot or current market. Petronet LNG, a JV of state-owned firms GAIL, ONGC, IOC and BPCL, buys 7.5 million tonnes a year of gas in its liquid form (LNG) from RasGas of Qatar. 

The sources said the high price of LNG under the long-term contract has pushed users in the fertiliser and power industry in India to cheaper alternatives like naphtha and fuel oil.

Petronet LNG, which has been buying LNG from Qatar on a long-term contract since 2004, has asked for a 10 <g data-gr-id="30">per cent</g> cut in import volumes this year, they said. 

“The contract is a take-or-pay wherein the buyer has to take the contracted volume every calendar year or pay for it. But the contract also provides for a flexibility that gives the buyer (the option) to defer taking 10 per cent less of yearly supplies. These volumes can be taken <g data-gr-id="35">anytime</g> during the duration of the contract,” the sources added.

Similarly, the contract also allows the buyer to seek 10 <g data-gr-id="32">per cent</g> more quantity over the contracted volume any year, with the excess volume being adjusted during the remaining duration of the contract. The sources said Petronet has already exercised the 10 <g data-gr-id="33">per cent</g> option and is in negotiations to raise this to 25 <g data-gr-id="34">per cent</g>.

It wants these deferred volumes at a price of spot market LNG and feels that by averaging the long-term price and the spot rate, it can sell Qatar LNG to consumers, sources said.