Petronet pays hefty demurrage as PSUs refuse costly gas import

Firm shells out Rs 400 cr a quarter for idle ships, is taking only 68% of volumes contracted with RasGas of Qatar

Petronet LNG Ltd, India's biggest liquefied natural gas importer, is shelling out Rs 400 crore every quarter in demurrage charges for ships idling because of its PSU buyers refusing to buy expensive imported gas.

The company is taking only 68 per cent of the volumes it agreed to in 25-year contracts with RasGas of Qatar after a slump in global energy prices led to gas being available in spot or current market a roughly half that rate.

State-owned GAIL India Ltd, Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) have committed to buy all of the 7.5 million tonne a year of LNG Petronet is to import from Qatar. But with slump in global prices, they have opted to buy gas from spot market rather than use the long-term LNG, senior officials said.

The reduced offtake by the buyers forced Petronet to cut its purchase from RasGas. This resulted in idling of three cryogenic ships it had chartered hired for ferrying gas in its liquid form at sub-zero temperatures from Qatar to its import terminal at Dahej in Gujarat.

"The cut in volumes has meant that on an average one out of the three ships is idling," an official said.

But as per charter hire conditions, Petronet continues to pay the day rates. "The demurrage charges come to about Rs 400 crore per quarter," he said.

While LNG in the spot market is available at $7-8 per million British thermal unit, the price of gas under the long-term contract with RasGas is close to $13 per mmBtu.

Pricing of LNG under the long-term deal is linked to the previous 12-month Japan Crude Cocktail (JCC), including caps and floors based on average JCC prices of the past 60 months.

Petronet had hired two LNG tankers of 138,000 cubic meters capacity and one tanker of 155,000 cubic meters capacity from a consortium of shipowners led by Mitsui OSK Lines Ltd of Japan for transportation of 7.5 million tonne per annum of LNG from Qatar to Dahej.

The time-charter agreement is valid till April 30, 2028.

The two 138,000 cubic meters ships were hired at a dayrate of $68,900 while the bigger one charges USD 72,880 a day.

While two LNG tanker - Disha and Raahi were pressed into service in 2004, the third tanker 'Aseem' came into service in November 2009.

The hire rate per ship consists of a non-escalating element of $57,900 per day and an escalating amount of $11,000 per day to be escalated at a maximum rate of 3 per cent per annum.

State-owned GAIL, IOC, BPCL and Oil and Natural Gas Corp (ONGC) hold 12.5 per cent stake each in Petronet, which has a 10 million tons a year import terminal at Dahej.

Petronet also has a 5 million tonne a year LNG import terminal at Kochi, Kerala, and is planning to set up a similar capacity terminal at Gangavaram in Andhra Pradesh.