Australian LNG to cost nearly half the price of Qatar gas

India will start importing natural gas (LNG) from Australia by end of the year at a rate which will be about 40 per cent less than the price of its current shipments from Qatar on a long-term contract.
Petronet LNG Ltd will in December start receiving liquefied natural gas (LNG) from Exxon Mobil-owned Gorgon LNG plant in Australia on a 20-year deal, a company official said.
The price is directly indexed to crude oil prices and at ruling oil price of USD 50 per barrel, LNG at Australian port will cost USD 7.25 per million British thermal unit. After adding shipment cost of around USD 1, the landed price of the Gorgon LNG would be around USD 8.2, he said.

While its Australian contract is indexed to average global oil prices in the preceding one year, Petronet's 25-year deal with RasGas of Qatar is on a five-year moving average of Japanese Crude Cocktail (JCC).
So, LNG from Qatar costs about USD 12.667 per mmBtu at the port of loading and nearly USD 13 at Indian coast.
Industry sources said long-term LNG from Qatar is costlier than what is available on the spot market at about USD 7 per mmBtu rate, reflecting the slump in international oil and gas prices.

The Petronet official said India benefited from the price cap in the Qatar contract for the first five years of supplies that began in 2004.

Industry sources, however, said Qatar LNG would have been cheaper had Petronet not renegotiated the 25-year deal.
RasGas of Qatar had in 2002 agreed to sell sell 7.5 million tonnes a year of LNG to Petronet at USD 16 a barrel oil price floor and USD 24 per barrel ceiling. This translated to a minimum gas price of USD 2.01 per mmBtu and a maximum price of USD 3.04 per mmBtu.
In 2003, however, Petronet renegotiated the price and agreed to having a fixed price at USD 20 per barrel oil (USD 2.53 per mmBtu) for five years from 2004 to 2009. For the next five years, it agreed to a price linked to moving average of the last 5 years of crude oil price and thereafter direct indexation with crude oil.

Sources said this led to price going up by USD 1 per year for five years from 2009, and from January 2014 to USD 12.66 per mmBtu at oil price of USD 100 per barrel.
Had Petronet not changed the contract, the price of LNG from Qatar would have been USD 3.04 per mmBtu for 25 years.
Sources said the then GAIL Chairman and Managing Director P Banerjee had raised concerns over Petronet not signing on the USD 16-24 per barrel floor-ceiling formula agreed at promoters meeting. But it is not know what response did his communications elicit.
GAIL, along with Indian Oil, Bharat Petroleum and Oil and Natural Gas Corp (ONGC), is an equal promoter with 12.5 per cent stake each.