Gas consumer wins from imminent LNG price war

Vol 7, PW 26 (24 Mar 04) People & Policy

It was not easy for Petronet-LNG to convince RasGas to agree to such significant amendments to the Supply Purchase Agreement.

Before agreeing, a RasGas team visited India to carry out a market survey to verify customer concerns over high landed LNG prices likely to be charged to Petronet-LNG. Amongst the issues covered by the survey were the impact of high LNG prices on urea and electricity.

An industry analyst believes that by backing down on price RasGas was responding to the ground realities of the Indian market and acknowledging that, no contract could survive if both parties do not make money. Discounts on spot market sales or long-term sales of less than 2.5m t/y of LNG to India are not included in the RasGas concessions to Petronet-LNG.

An industry source stresses that India is not in the same league as the United States or Europe where about 60% of regassified LNG is sold for about $8 per mmbtu to households. The balance is sold to industrial consumers at anything between $3 and $4 per mmbtu.

In India almost the entire quantity (of regassified LNG) will be sold to industrial consumers, who currently pay $2.5 per mmbtu for (controlled pricing) domestic natural gas. But with the expected saturation of the US and European market, theres no alternative to gas producers but to look to India and China as new demand centres.

Qatar is sitting on about 900 trillion cubic feet of gas, and with Iran also wanting to enter the market, therell be that much more pressure on Qatar. Irrespective of competition, RasGas is unwilling to give up its first mover advantage at Dahej.

RasGas doesnt want to lose the Indian market, reveals a source. Otherwise they would not have given the kind of price comfort they have to Petronet-LNG.

In the short term, the winner in this looming price war between Iran and Qatar will be the Indian gas consumer. Long term, LNG suppliers could form a cartel to keep prices high.

The competitors could team up later and agree not to try to kill each other and carve up the market between themselves.