Economic Times: January, 2016
New Delhi: Petronet LNG has reworked its long-term gas deal with Qatar's RasGas that will halve the import price and waive the penalty of Rs 12,000 crore for lifting lower than the contracted amount, a sign of the changing global commodity market and the related shift of power to the gas consumers.
The biggest Indian gas importer, Petronet had been forced to buy one of the most expensive liquefied natural gas (LNG) in the world this year due to a 25-year contract that didn't quickly reflect the global price crash. The spot LNG prices have fallen to $6.7 per unit but Petronet had to purchase LNG at $12-13 per unit under the contract.
This price will fall to $6-7 per unit from January under a reworked pricing formula, oil minister Dharmendra Pradhan said, following the agreement between the two companies after negotiations that lasted several months and involved multiple interventions from Prime Minister Narendra Modi, Pradhan and the head of the state of Qatar.
"It's no more a buyer-seller relationship. We are now advancing towards a partnership," Pradhan said, referring to the success of the negotiations and the lever key consumers like India have gathered in the global commodity market lately.
It took 51 meetings for the two companies to agree on a deal that was clinched on November 10, said Prabhat Singh, CEO of Petronet, 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 nobody would like to leave 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. Global LNG output is expected to rise two-and-a-half times to 500 billion cubic meters (bcm) by 2020 as supplies increase, mainly from the United States and Australia, putting further pressure on prices. Some analysts expect prices to fall to $4 per mmBtu by 2017.
Shares in Petronet LNG and its key customer GAIL ended about 3% and 2.2% up respectively on the Bombay Stock Exchange on Thursday when the broader market was up only 0.6%.
As part of the concession from the Indian side, Petronet has agreed to purchase an additional 1 million tonnes of LNG annually from RasGas, taking the total contracted volume to 8.5 million 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 Corp, Bharat Petroleum Corp, GSPC and GAIL.