New Delhi: On 10th May, As India asks Qatar to cut LNG price to match slump in global rates, a series of changes in original bid has led to the gas price tripling to USD 12-13 per unit.
In response to a global supply tender floated by Petronet LNG Ltd, RasGas of Qatar had quoted a formula that had a fixed component of USD 2.53 per million British thermal unit and a linkage to global oil and coal rates for supply of 7.5 million tonnes a year of LNG for 25 years, industry and company sources said.
The LNG price was to rise or fall by 2 cents per mmBtu in tandem with every dollar movement in oil price. At a USD 100 a barrel oil rate, the LNG price was to be USD 4.13 per mmBtu.
Petronet, whose Chairman is Oil Secretary, had switched
to buying lean gas, which can only be used as fuel, instead of rich gas that can also produce petrochemicals and cooking gas (LPG).
Sources said as per the contract, Qatar was to supply 7.5 million tonnes of rich gas containing compounds like propane and butane from which LPG and other petrochemicals can be produced.
While RasGas gave rich gas in the first tranche of 5 million tonnes beginning 2004, it supplied the remaining 2.5 million tonnes of 'lean' gas without any corresponding change in price of LNG.
Lean gas is the stripped of propane and butane.
Petronet LNG, which is majority owned by state-owned oil companies, had in 1999 signed a contract with Qatar's RasGas to buy 7.5 million tonnes a year of natural gas that has been cooled to liquid form (LNG) so that it can be shipped.
The contract was for import of 5 million tonnes of LNG at Petronet's Dahej terminal in Gujarat and 2.5 million tonnes at its Kochi facility in Kerala.
All of the 7.5 million tonnes of LNG to be supplied by RasGas were supposed to be rich gas, which contains compounds like ethane, propane and butane that are building blocks for petrochemicals and LPG.
RasGas began supplies of 5 million tonnes a year of rich- LNG at Dahej in 2004. But supply of the remaining 2.5 million tonnes could not start as construction on Kochi terminal was delayed.
In 2005, Petronet entered into negotiations with RasGas to advance the tranche-2 volumes of 2.5 million tonnes. They proposed to buy the entire 7.5 million tonnes a year of contract supplies at Dahej.
Petronet signed a revised deal in 2006 wherein it agreed to take 5 million tonnes of rich gas and for the rest agreed to RasGas condition that the rich gas will be supplied only on best endeavour basis rather than as contractual commitment, sources added.
Sources said the second best offer in that tender was from Petronas of Malaysia which quoted the same fixed cost but a slightly higher linkage to oil and coal prices.
In case of Petronas, LNG price would have risen or fallen by 3 cents per mmBtu for every rise or fall in oil prices.
But strangely, an unsolicited offer from RasGas of pricing LNG in a band of USD 16-24 per barrel oil price (USD 2.01 per mmBtu to USD 3.04 per mmBtu gas price) was accepted by Petronet in 2000.
Further, in 2003, Petronet renegotiated the price and agreed to having a fixed price at USD 20 per barrel of oil (USD 2.53 per mmBtu) for five years from 2004-2009 and indexation with actual crude prices thereafter, sources said.
This led to the price going up by USD 1 per year for five years from 2009, and from January, 2014, the price was directly linked to international rates. It currently is between USD 12-13 per mmBtu, three times the original price offer.
Had Petronet not changed the contract, the price of LNG from Qatar would have been USD 3.04 per mmBtu for 25 years.
With global LNG rates slumping and the fuel being available at USD 6-7, Petronet is seeking lowering of rates, sources said.
Not just on price, there were changes made in the quality of LNG supplied that put Petronet to a disadvantage.
