The Hindu Business Line : Welcome LNG agreement

THE AGREEEMENT BETWEEN India and Iran on LNG supply by the latter starting from 2009 has come not a day too soon in view of the huge demand-supply gap in the country. As pointed out by the Minister for Petroleum and Natural Gas, Mr Mani Shankar Aiyar, India's gas requirements are expected to increase four-fold by 2020. While domestic output today is much less than 100 million metric standard cubic metres a day, demand is expected to shoot up to around 400 mmscmd (present demand: 150 mmscmd). This makes it imperative to step up domestic output and increase imports. This is where the India-Iran LNG supply agreement will make a big difference (five millions tonnes equivalent to about 19 mmscmd of gas are to be supplied annually for 25 years beginning 2009) as also the agreement with Qatar signed a couple of years ago — also to supply five million tonnes a year for 25 years.

From Teheran's point of view, the LNG supply agreement is important as it forms a crucial part of Iran's long-term plan of strengthening its position in the world oil and gas market by tying up supply agreements with important consumers. Last year, Iran entered into a 30-year LNG supply agreement with China worth $70 billion (against $22 billion for India at current market prices). There is also the Iran-Pakistan-India natural gas pipeline project that is still being discussed and which is being resisted by Washington for its own reasons.

The Indian requirement of LNG has, therefore, been neatly dovetailed into Iran's plan of widening its market, with both sides hoping to gain from the exchange. Indeed, the question is whether the price at which the deal has been struck ($3.51 per million Btu) is the best from the Indian point of view. Late last year, when the deal was being negotiated, serious objections were raised by New Delhi to the price sought by Teheran which, according to the Petroleum Secretary, was much higher than the $2.53 per mBtu that India pays for LNG from Qatar. Admittedly, the international price of gas is linked to that of crude oil which today is ruling above $50 a barrel — much higher than it was when the Qatar LNG price was fixed. But, since then, sizable gas discoveries have been made within the country (in the Krishna-Godavari basin, for example), which should have a dampening effect on prices, though the gas has not yet begun flowing into the pipelines.

The Petroleum Minister is also trying to get piped natural gas from Myanmar and Bangladesh, projects that are still mired in problems essentially political in nature. Even if these projects do not get off the ground, it is clear that gas is going to form a significant part of the country's energy profile in the long run, the implication being that there should be in place an efficient gas supply and distribution infrastructure. Not surprisingly, private sector energy majors have banded together to voice their concern over the evolving domestic gas policy of the Government, their primary fear being that a monopoly situation may develop in distribution, with GAIL as the nodal agency, and that this could hit the sector's functioning, putting off potential investors.

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