In a major energy diplomacy coup for Modi Sarkar, Qatar halves gas price, waives India’s ₹12,000 Crore liability.
In a major energy diplomacy coup for the Narendra Modi government, Qatar has nearly halved the price of gas it sells under a 25-year contract and waived a payment liability of ₹12,000 crore arising from India's refusal to import the committed number of shipments in 2015 under the 'take-or-pay' clause.
Petronet LNG, India's largest importer of gas in ships, and Qatar's Ras Gas on Thursday agreed to a new pricing formula that would see gas price dropping to $6-7 per unit from the original $12-13.
India is the second liquid gas buyer after China to have successfully renegotiated a long-term contract in tune with the changed reality of slump in prices and supply glut in the global energy market.
Oil minister Dharmendra Pradhan described the renegotiated deal as a "win-win" outcome of "statesmanship" shown by the leaders of the two countries.
A consensus on need to reopen the deal in the backdrop of low global oil and gas prices emerged during Qatari Emir Sheikh Tamim bin Hamad Al-Thani's visit in March.
Pradhan reinforced that concensus during his visit to Doha in November at the head of a delegation that included Petronet MD Prabhat Singh.
The new formula is linked to Brent crude, the European benchmark, and would entail a saving of ₹4,700 crore annually for the fertiliser industry alone, the biggest consumer of liquid gas.
A lower fuel cost would automatically reduce the government's fertiliser subsidy.Impact on power tariffs would be nominal, if at all, since gas-fired stations account for 7-8% of total capacity.
Most of the gas-fired stations are running under special government subsidy scheme. But gas utility GAIL would stand to benefit since the lower price would prompt gas demand, raising utilisation of the utility's pipelines.
Singh said the main driver was the realisation on both sides of India's muscle as a buyer and Qatar's imperative to maintain market share.
India drove home the point that if consumers of such a large market move to alternative suppliers, Qatar may lose that market share for ever.
For Qatar, there can be no better market than India because of the netback it offers against UK or Japan, which are lower by $2-3.
In return for the renegotiation, The two companies also signed a separate contract for one million tonne of additional gas for the remaining tenure of the deal, which has given a benefit of $15 billion by way of lower prices when they were going up in the 11 years since supplies began in 2003.
In the aftermath of the oil and gas price crash, liquid gas prices in the spot market fell to $7-8 per unit, making Qatari gas bought under the contract prohibitive for industrial consumers.
As a result, Petronet's offtakers, all state-run oil companies who had the marketing contract and a back-to-back deal with the importer, reduced their offtake of the costly gas.
This made Petronet defer Qatari gas and buy from spot market.The reduced off-take by the buyers forced Petronet to cut its purchase from RasGas.
This resulted in idling of three special ships it had charter-hired for ferrying liquid gas from Qatar to its import terminal at Dahej in Gujarat. And as per the charter hire conditions, Petronet continues to pay the day rates. The demurrage charges come to about ₹400 crore per quarter.