India wants Qatar to lower gas price; Qatar says no to reopening existing contracts

NEW DELHI: India on Monday pressed its largest LNG supplier Qatar to lower the price of gas under the existing

long-term supply contracts, a request that Doha turned down saying sanctity of contracts is important for the credibility of both sides.

India imports 8.5 million tonnes per annum of LNG from Qatar under two longterm contracts with a rate

linked to crude oil prices. Landed price of liquefied natural gas (LNG) comes to $9-10 per million British thermal unit while the same gas is available in the spot or current market at half the rate. The long-term contract with Qatar is the most expensive with volumes from Australia, Russia, and US on

long-term contracts coming on cheaper rates.

Oil Minister Dharmendra Pradhan met Qatar Energy Minister Saad Sherida alKaabi to press for the "need for realignment of existing longterm LNG contracts with the market to suit the affordability of end consumers".

Talking to reporters after the meeting, Pradhan said the pricing of gas as a percentage of prevailing oil prices tends to inflate the price of the environment-friendly fuel, and alternate independent benchmarks needs to be developed.

The linkage means that the price of gas will go up every time there is a spike in crude oil prices.

The US and Russia price gas with no links to oil, he said.

"All energy producers have to revisit this old practice and come to the new methodology of pricing keeping demand and supply in mind," he said. "We need to re-examine the pricing mechanism" of the long-term natural gas deal with Qatar.

Kaabi responded saying current contracts cannot be renegotiated but Qatar was willing to supply additional volumes at different rates.

"We don't renegotiate existing contracts. Contracts are contracts for the duration we sign them for. We as businesses understand that the sanctity of contract is important for both sides. And for the credibility of both sides, both parties must respect that," he said. "We are looking forward to adding more volumes in India and negotiating additional volumes."

He said India has a huge demand for gas and Qatar is willing to meet all of that.

Pradhan said the meeting with Kaabi brought representatives of user industries -- power, fertilizer, steel and city gas distributors -- face to face with the supplier to help them better understand the market dynamics. Users prefer to buy gas from the spot market rather than take the longterm contracted volumes as it was cheaper.

"Long-term contract is facing a challenging situation," he said. Qatar sells LNG to India at a price equivalent to 12.67 per cent of the three-month average Brent crude oil price. The indexation of Russian LNG is 11.5 per cent.

The power sector, which is the second-biggest consumer of gas after fertiliser, wants a

landed price of LNG to be no more than $4.5-5 per mmbtu. Any price higher than that will not help electricity generated using gas to be able to complete with that produced from renewable sources such as solar energy. Because of the high price, 18,000 megawatts of gas-based power projects are stranded. India consumes 157 million standard cubic metres per day of gas, half of which is imported.

The government wants to increase the share of natural gas in its energy basket to 15 per cent by 2030 from 6.2 per cent currently. India has in the past used its status as Asia's third-largest LNG buyer to renegotiate deals with Qatar, Australia, and Russia. In 2015, it renegotiated the price of the

long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping in saving Rs 8,000 crore. At that time, Qatar agreed to price LNG at a three-month average Brent oil price instead of the previous practice of pricing it at a 60-month average of Japanese Crude Cocktail (JCC) in exchange for India buying an additional 1 million tonnes per annum of LNG. Both the contracts ends in 2028.

In 2017, India got Exxonmobil Corp to lower the price of Gorgon LNG and a year later convinced Gazprom to lower rates also.

"For us, we have a contract with India. Both sides are professionals who will stick to contracts," Kaabi said. "We have excellent political and business relationships. Contracts that we have, we abide by them."

"We are not renegotiating existing contracts," he said. "We

look forward to supplying additional volumes."

Pradhan said at the meeting that India presented its demand numbers for the future and the infrastructure that is being built.