Qatar not to accede to Indian demand seeking renegotiations of LNG contracts

KOLKATA (miningweekly.com) – Qatar, the largest supplier of liquefied natural gas (LNG) to India, has turned down a request from the latter to renegotiate long-term supply contracts.

India demanded that the pricing mechanism for LNG imported from Qatar, linked to crude oil, needed to be revisited and long-term contracts renegotiated, based on a new mechanism. However, turning down such a request from India, Qatar has firmly underlined the “sanctity” of contracts already signed and said these cannot be renegotiated, although the Gulf nation was willing to commit additional LNG supplies at new prices.

India imports an estimated 8.5-million tons a year of LNG from Qatar, under two long-term contracts, with the landed price currently at $9 to $10 per million metric British thermal unit. The current landed price of LNG sourced from the spot market is almost half the landed price of Qatari LNG. The two contracts are valid until 2028.

Under the long-term contract, the price of supplies from Qatar spikes every time crude oil prices surge. LNG imports from the US or Russia into India are not linked to international crude prices. Qatar sells LNG to India at a price equivalent of 12.67% of the three-month average of Brent crude oil price.

“All energy producers have to revisit this old practice and come to a new methodology of pricing keeping demand and supply in mind. We need to re-examine the pricing mechanism of the long term natural gas deals with Qatar,” India Petroleum and Natural Gas Minister Dharmendra Pradhan said soon after a meeting with his Qatari counterpart on Monday.

In response, Qatar Energy Minister Saad Sherida al-Kaabi said: “We don’t re-negotiate existing contracts. Contracts are contracts for the duration we sign them for. We as a business understand the sanctity of contract is important for both sides. And for the credibility of both sides, both parties must respect that. We are looking forward to adding more volumes in India and negotiating additional volumes.”

In 2015, India and Qatar renegotiated a long-term supply contract for 7.5-million tons a year and to move away from benchmarking the price to a 60-month average of Japanese Crude Cocktail, to the three-month average of Brent crude oil and lifting an additional one-million tons a year with the savings at a time when Brent was pricing was low.

Similarly in 2017, India re-negotiated a supply contract with ExxonMobil Corporation and lowered the price for Gorgon LNG.

India currently consumes 157-million standard cubic meters a day of natural gas of which half needs to be sourced from overseas. This consumption meets roughly 6.3% of the country’s energy needs, with government targeting natural gas's contribution to total energy needs increasing to 15% by 2030.