India’s biggest gas importer, Petronet LNG Ltd, is to buy liquefied natural gas (LNG) from Qatar’s RasGas Co Ltd at almost half the original price, in a renegotiated deal that is to save Petronet about US$605 million per year.
The deal marks Indian Prime Minister Narendra Modi’s biggest diplomatic win in the energy sector since coming to power in May 2014. He has been trying to leverage India’s position as one of the world’s biggest energy consumers to strike better bargains for its companies.
It also shows how tumbling oil prices and a global gas glut are compelling exporters to offer better deals to retain their share in global energy trade.
Under the new contract, RasGas is to supply LNG to Petronet at US$6 to US$7 per million British thermal units from yesterday, sharply lower than US$12 to US$13 agreed earlier, Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan told reporters on Thursday.
The Qatari supplier has also waived a US$1.5 billion penalty against Petronet for lifting less gas than agreed, Pradhan said.
“It’s a win-win situation for both partners,” Pradhan said. “Qatar has been a good business friend, but we’re now moving from the relationship of a buyer and a seller to long-term partners.”
New Delhi estimates cheaper gas supplies will halve the input cost for local refineries, power and fertilizer companies starting this year, helping improve their profitability.
“Their purchase cost will almost come down by 50 percent,” an Indian Ministry of Petroleum and Natural Gas official involved in the deal said.
Petronet has a 25-year contract with RasGas to annually buy 7.5 million tonnes of LNG. However, it reduced purchases by about one-third last year due to high prices, substituting costly supplies from Qatar with cheaper spot shipments.
The fall in purchases, bigger than permitted under the original 2004 contract, made Petronet liable for the penalty.
Petronet shares jumped 3.4 percent to 255.95 rupees on Thursday, its highest close, in Mumbai. State-run GAIL (India) Ltd, its biggest customer, advanced 1.9 percent.
The pricing deal might stoke similar demands from other buyers, including Korea Gas Corp and China National Offshore Oil Corp (中國海洋石油), a Credit Suisse Group report dated Dec. 9 said.
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