India seeks cut in LNG prices from Qatar as gas prices cool

India is seeking a cut in gas prices from its largest liquefied natural gas (LNG) supplier Qatar to match the 60% slump in global rates in the last one year. India buys 7.5 million tonnes of LNG a year on a long-term 25-year contract, indexed to a moving average of crude oil price. The price of LNG from Qatar comes close to $13 per million British thermal unit as compared to the $6-7 rate at which it is available in the spot or current market.

Petronet LNG Ltd “is working to mitigate the impact of the higher prices under the long-term contracts so as to bring the LNG prices more in line with the current market conditions”, oil secretary Kapil Dev Tripathi said. Tripathi, who is also the chairman of Petronet, said the prices of LNG in the spot or current markets have come down considerably in the past one year. “While this is good for the consumers, this has also created a disparity in the prices of LNG under the long-term contracts vs the spot prices,” he said while addressing Petronet’s 17th annual general meeting (AGM) here.

The high price of LNG under the long-term contract has led to users in fertiliser and power industry finding it cheaper to use alternate fuels like naphtha and fuel oil. Petronet LNG Ltd, which has been buying LNG from Qatar on a long-term contract since 2004, has reduced the annual offtake by at least 30% this year because of the high price. Tripathi said international oil and gas markets have been facing a challenging environment for the past many months due to the sudden and sharp collapse in oil prices.

“Although various factors have contributed to this volatility, the emergence of the USA as a large producer of shale oil and shale gas has been the primary reason for the abundance of oil and gas, resulting in reduced imports into the USA,” he said. This, coupled with the start in production of various LNG projects, has increased the availability of LNG around the world, he said. India, he said, is the fourth largest importer of LNG in the world. “A total of about 14 million tons per annum of LNG is imported into India currently and almost 80% of these imports come to Petronet’s two terminals (at Dahej in Gujarat and Kochi in Kerala),” he said.

While Qatar has been the largest supplier of LNG to India for many years, various other countries are now selling LNG to India. “This helps the country diversify its sources of imports,” he said. Tripathi said Dahej capacity will be raised by 50% to 15 million tonnes by December 2016 and a further expansion to 17.5 million tonnes is planned.

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