Shifting Iranian position on LNG frustrates India

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

India and Iran have been talking about LNG since January 2003 when Delhi and Tehran signed a MoU to boost oil sector co-operation between the two countries.

The original understanding was that India would agree to import 5m t/y LNG for 25 years in exchange for one significant sized discovered oilfield and one semi-discovered field to Indian state-owned companies. This understanding became worthless when India realised that Iran would only award the acreage after a bidding round, not on nomination.

To quote a senior Indian official, LNG import discussions and upstream opportunities are now virtually de-linked from each other. By June 2004, discussions over LNG had progressed to such an extent that India even initiated the process of drafting a Sale Purchase Agreement.

But disagreement remained on price. The original Iranian LNG FOB price offer to India was $0.92 plus 0.065B where B is the previous 12-month average price of Brent crude.

But India was only willing to buy at a FOB price of $0.92 plus 0.04B. During subsequent meetings, India offered Iran equity stakes in a regassification terminal and participation in shipping LNG to India.

Further, India also said it could ask for a discount (on LNG price) if LNG imports and the upstream opportunity were separated. Iran appeared to be coming around to the Indian position and even suggested Delhi should work out an approach paper justifying its demand for a lower LNG price.

Matters changed sometime in July 2004 following uproar in the Iranian parliament against selling LNG to India at a price cheaper than neighbouring Qatar. Following this, Iran hardened its position on price.