Price negotiations for extra 1.25m t/y begin soon

Vol 9, PW 9 (11 Aug 05) Midstream & Downstream

Encouraged by Qatari willingness to supply more LNG, a ministry team is scheduled to return to Doha at the end of this month to resume discussions for the additional 1.25m t/y LNG for Dahej.

If terms were agreed, Dahej would need this LNG in the three years to 2008, when work to double capacity to 10m t/y should be completed. When that happens, RasGas will begin supplying the entire 7.5m t/y LNG contracted in 1999.

RasGas is not bound to supply anything more than the 5m t/y it is now supplying to Dahej until the expansion actually happens, we learn. All that remains is to agree the terms under which Qatar can supply this additional 1.25m t/y.

Quantity and price are the two most important issues, we are told. These have to be agreed first.

Everything else is secondary. Pricing of the extra 1.25m t/y was not discussed during the 1st August visit of the Indian team.

Yet India knows it will have to pay more than the $2.53 per mmbtu already contracted with Petronet-LNG. Our current price from RasGas is the lowest in the world.

Understandably, neither side will disclose details, given the sensitive and secretive nature of LNG contracts and the negotiations preceding them. One indicator is the current global FOB prices for LNG.

Global FOB prices are around $3.5 per mmbtu, we learn. Another benchmark could be the price at which Iran contracted to sell LNG to India for 25 years from 2009 in its SPA with GAIL, Indian Oil and Bharat Petroleum on 13th June.

We understand the price for the additional LNG from Qatar could be between $3.2 and $3.5 FOB per mmbtu. Whatever is discussed, India is confident it can negotiate a price for its additional 1.25m t/y cheaper than the current global FOB price.