Industry welcomes end of R-LNG â€کprice-pooling'

Vol 13, PW 9 (08 Oct 09) People & Policy

Fixed term LNG prices in India have dropped sharply thanks to the end of a short-term deal between RasGas and Petronet-LNG for 1.5m tonnes of LNG, which expired on September 30.

Fertiliser factories, power stations, steel factories and others are quietly celebrating the end of this contract, which the government used to ensure cheap electricity from the Dabhol power plant. On October 1, gas customers reported that the ex-terminal price of long-term Dahej R-LNG fell to $5.2/mmbtu at gross calorific value, excluding marketing margin, taxes, transportation and GAIL’s pipeline interconnection charges.

“This is a $1/mmbtu fall from last month,â€‌ says a consumer. “All thanks to the end of the 1.5m tonnes contract for Dabhol.

â€‌ Why the drop Because when Petronet-LNG signed the contract with RasGas on July 3, 2007 for 1.5m tonnes, the government executed an order issued in March passing on the high cost to the rest of the country by averaging out the (undisclosed) high price of the new RasGas LNG contract with the much-publicised low $2.53/mmbtu (FOB) price of the earlier 25-year RasGas SPA signed with Petronet-LNG on July 31, 1999. Predictably, anger erupted and companies like Essar and GSPC accused the government of dishonesty and went to court.

Now however, with the stroke of a magic wand, the problem has disappeared. “The (oil) ministry has not yet formally told anybody that the price pooling order is withdrawn,â€‌ adds a source.

“But it will automatically lapse because there is now only one long-term LNG from a single contract.â€‌ Price pooling, argue many, was a blunder.

“We had to pay much more than what we were legitimately supposed to pay under our contracts,â€‌ we hear, “just because the government wanted cheaper R-LNG for Dabhol.â€‌ But customer happiness is tempered with the realisation that D6 gas is still cheaper than Dahej R-LNG.

“The Dahej R-LNG price has come down by $1/mmbtu but D6 gas is available at $4.2/mmbtu (net calorific value) at Kakinada,â€‌ we hear, “so we are still paying much more than we should.â€‌ At net calorific value, the present Dahej R-LNG price is $5.8/mmbtu.