Cheap LNG from Dahej to ease cost of LNG for Dabhol

Vol 10, PW 17 (14 Dec 06) People & Policy

Customers buying long-term R-LNG from Dahej should prepare themselves for a price rise.

PETROWATCH learns the oil ministry wants them to partly subsidise the higher cost of LNG that will be imported for the Dabhol power station from March next year. According to a source, the ministry is planning to issue a formal directive permitting GAIL, IOC and BPCL to raise R-LNG prices even though customers have fixed price contracts till December 2008.

This decision, we hear, was taken at a meeting in Delhi chaired by oil secretary MS Srinivasan and attended by GAIL, IOC and BPCL on 29th November. Petronet-LNG presently imports 5m t/y LNG from RasGas at $2.53 FOB per mmbtu valid till 2008 - for GAIL, IOC and BPCL.

Very soon it will begin importing another 1.2m t/y LNG at a much higher price for Dabhol. In order to minimise the cost of power generation (at Dabhol) it has become incumbent to provide the best possible price of R-LNG for Ratnagiri Gas (the state-owned operator of Dabhol), reads a ministry note.

As such, the concept of pooling of R-LNG price applicable for 5m t/y of LNG tied up with existing customers and the price of 1.2m t/y of R-LNG being sourced by Petronet-LNG should be worked out. GAIL, IOC and BPCL stress that prices in their contracts are valid till December 2008.

Any change or revision before that, they say, needs a directive from the government in line with a contract provision, which says, if at any time due to change of law or change in the policy of the government or formation of Regulatory Authority, any revision in the price is necessitated, the revision in the various price elements shall be effected. Petronet-LNG has been asked to work out the pooled price of R-LNG given the present 5m t/y and the additional 1.2m t/y LNG for Dabhol.

The pooled price of R-LNG so worked out by Petronet-LNG shall be applicable for the entire volume of R-LNG to be available ex-Dahej to be transported by GAIL through the Dahej-Vijaipur pipeline or Dahej-Uran pipeline or Dabhol-Panvel pipeline, adds the ministry.