India rejects Qatar price for LNG

India has rejected the price that Qatar is seeking for supplying additional 5 million tons a year of liquefied natural gas, saying that domestic consumers cannot afford the rate the world's largest LNG exporter is asking for.

Qatar wants at least 14.5% of the prevailing Brent crude oil price for supply of 5 million tons of LNG but New Delhi has rejected the offer, said sources with knowledge of talks with a high-level Qatari delegation, led by Minister for Industry and Energy Mohammed Bin Saleh Al Sada.

At Brent crude oil price of $110 per barrel, gas in its liquid form (LNG) will cost $15.96 per million British thermal unit at the time of loading in ships at Qatar ports.

After adding shipping cost, import duty of 5%, cost of regasifying the fuel, pipeline tariff and local levies, the gas would cost a consumer about $20 per mmBtu, three times the price of domestic gas.

Sources said New Delhi politely told the visiting Qatari delegation, which included the head of Ras Laffan Liquefied Natural Gas Co -- a venture between Exxon Mobil Corp and the Qatari state that currently supplies 7.5 million tons a year of LNG on a long-term contract.

India's concerns on pricing reflected in Oil Minister S Jaipal Reddy's speech at function where the visiting Qatari minister was also present.

"On the pricing front, a major challenge is that for end consumers in India, gas has to compete with relatively cheaper fuels such as coal, especially in the power sector," he said at the foundation day celebration of Petronet LNG Ltd.

"Therefore, price fixation of gas, whether LNG from abroad of gas through trans-national pipelines, will have to be mindful of this reality," he said hoping the negotiations between RasGas and Petronet will "soon reach fruition, to the satisfaction of both sides."

Qatar, world's largest LNG producer, is seeking larger and longer export deals amid a surge in global supplies that is encouraging buyers to call for an end to costing the fuel based on oil prices.

GAIL India, which is a promoter firm of Petronet, recently signed a deal to source LNG produced from shale gas in US at a price linked to Henry Hub, which is the benchmark for gas traded in US.

US gas traded at the lowest level in 10 years of less than $3 per mmBtu while Brent crude has jumped to a three and a half year high of $125 per barrel.

Al-Sada urged India to commit expeditiously saying "a wait and see attitude in some markets who are deferring decision will in turn delay investment decision (in LNG producers). As history has shown as, it will lead to potential market instability and demand-supply imbalance."