LNG deal with Tehran might still go through after all

Vol 8, PW 19 (15 Dec 04) People & Policy

Contrary to media reports, India has not closed the door on negotiations with Iran for LNG to meet its growing energy needs.

True, a team of top IOC, GAIL and OVL officials led by oil minister Mani Shankar Aiyar returned empty-handed from Tehran on 6th December but a senior Indian source tells PETROWATCH: The issue is not closed. We are still in discussions.

Price is the only pending issue. Everything else is settled.

We learn the next round of high-level discussions will take place in January on the sidelines of the Petrotech 2005 oil conference when Iranian oil minister Bijan Zanganeh is expected to visit Delhi. Currently, both sides are firm on their respective positions and are unable to agree on price.

The present Indian package offered by Mani Shankar Aiyar to Tehran on 4th and 5th December is that Delhi will buy LNG at a FOB price of $0.92 plus 0.04B where B is the average previous 12-month price of Brent crude with a floor and ceiling crude oil price of $10 and $30. The earlier floor and ceiling being discussed was $15 and $25, reveals a source.

Since Iran has reduced the floor by $5 they should accept a corresponding increase in the ceiling as well. Another Indian proposal is that the fixed component in the total price could be such that the price of Iran LNG remains in the vicinity of Qatar LNG.

Alternatively, we are told, the fixed price for five years from 2009 (the earliest that Iran could begin shipping LNG to India) would be in the range of $2.5 to $2.55 per mmbtu. Note that India is open to renegotiating this price after another five years.