State-run Petronet LNG has inked a 20 year contract for procuring 7.5 million tonnes per annum (mtpa) of liquefied natural gas (LNG) from Qatar.
This is pursuant to extension of an existing LNG sale and purchase agreement (SPA) for the supply of around 7.5 mtpa on FOB basis and was signed in July, 1999 for supplies till 2028. The negotiations of the deal concluded in December last year.
Under the new agreement, LNG supplies will be made on a delivered (DES) basis commencing from 2028 till 2048.
Petronet LNG MD and CEO Akshay Kumar Singh said, “The existing long-term agreement between Petronet LNG and QatarEnergy today accounts for around 35 per cent of India’s LNG imports and is of national importance.”
Similar to an earlier agreement of 1999, the LNG volumes under the new SPA shall also be off-taken by GAIL (India) Ltd (60 per cent), Indian Oil Corporation (30 per cent) and Bharat Petroleum Corporation (10 per cent) after regasification, primarily from Dahej Terminal of Petronet on substantially back to back basis.
The deal with QatarEnergy was announced on the same day when Prime Minister Narendra Modi inaugurated the India Energy Week (IEW) in Goa. The deal was signed in the presence of Oil Minister, Hardeep Singh Puri and Qatar’s Minister of State for Energy Affairs, Saad Sherida Al-Kaabi.
Al-Kaabi said, “This agreement is another key milestone in the long-standing energy partnership between Qatar and India and comes on the heels of the 20th anniversary of the first LNG shipment to India.”
Sources said that the new long term deal has been in India’s favour as it has inked the contract on better prices, same as has been offered to countries such as China.
In May last year, Singh had said that Qatar sells 7.5 mtpa LNG to India at an indexation of 12.67 per cent of the prevailing Brent price plus $0.52 per mBtu (million British thermal unit). At a price of $100 a barrel of crude, the gas price comes for $13.19 per mBtu. It also purchases additional 1 mtpa of LNG at a slight variation to this price.
On lower prices for future contracts, he had said that Qatar inked contracts with Bangladesh, China and Pakistan at a lower slope (less than 12.67 per cent). “Our expectation is to have the long-term deal renewed at those levels. We are very seriously engaged with them and are negotiating for a better price,” Singh had explained.
Qatar-US LNG face-off
The deal with Petronet also underscores an urgency on part of the Arab nation to secure deals to tie up its 126 mtpa LNG capacity, which is expected to be operational by 2027.
Analysts point out that Asia, particularly China and India, have become more important for Qatar as it faces stiff competition from the US, especially in Europe, whose dependence on US LNG hit a new record of 45 per cent in Gas Year (GY) 2022-23 (October-September).
According to CEDIGAZ, the share of Europe in total US LNG export volumes continued to rise in GY 2022-23, reaching 68 per cent (up from 61 per cent in GY 2021-22 and 29 per cent in GY 2020-21.
The competition between Qatar and the US is expected to escalate as North America is also adding LNG capacities. According to the US EIA (November 2023), “By the end of 2027, we estimate LNG export capacity will grow by 1.1 billion cubic feet per day (Bcf/d) in Mexico, 2.1 Bcf/d in Canada and 9.7 Bcf/d in the US from a total of 10 new projects across the three countries.”
In the past year, Qatar has inked long term LNG deals with The Netherlands, France, China, Bangladesh, among others. The company has in the past said that several Asian and European buyers have evinced interest in signing one term contracts.
The world’s top LNG importer is implementing its North Field East (NFE) expansion project to raise production capacity from 77 mtpa to 110 mtpa in the first phase. In the second phase, the North Field South Project (NFS) will further increase the output to 126 mtpa by 2027.