India seeks better deal on Qatari LNG
Thursday, Jun 29, 2017
India appears to be seeking to capitalise on Qatar’s row with several of its neighbours, proposing a fresh long-term LNG purchase deal with the kingdom at a time when the exporter is isolated and potentially nervous about its ability to hold on to its position as the world’s biggest LNG supplier.

One condition of any deal is that Doha agrees to acquire equity stakes in gas-fired thermal power plants (TPPs) in India, the South Asian country’s Minister for Petroleum and Natural Gas, Dharmendra Pradhan, said last week.

“We have given a firm proposal to Qatar. If they want to have a long-term offtake assurance there is a window,” he told Reuters. “They can deal with our stranded power plants; from end to end they can give some solution.”

Following a surprise announcement early this month that Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt had cut diplomatic, economic and transportation links with Qatar – on the back of claims that it funds and supports terrorism – Qatar no longer has access to several major ports in the region such as Dubai’s Jebel Ali.

For this reason, Qatar has also agreed to open up new trading points for LNG supplies to India, potentially using Iranian ports such as Bandar, Abas and Chhabahar, Pradhan said.

India has also indicated it is willing to give Qatar the opportunity to acquire equity stakes in LNG terminal projects under construction in India.

There are currently four LNG operating terminals in India – at Dahej, Hazira, Kochi and Dabhol – with regasification capacity of 25 million tpy. All, however, are operating at levels below capacity.

Still, India has set itself a target of virtually doubling the country’s LNG terminal capacity by 2022 to 47.5 million tpy – and Qatari money would help it achieve this.

Tactics and strategy

Although Qatar was quick to reassure its key buyers earlier this month that LNG supplies would not be affected by its isolation – and India’s Petronet LNG confirmed too that its imports had not been hurt – a prolonged Gulf crisis could damage the margins at which the emirate can export LNG.

Using Iranian ports would likely push up costs for Qatar, according to Jean-Francois Seznec of the US-based Atlantic Council’s Global Energy Center.

“It may have a small indirect impact in the case of continued tension,” he said. “Insurance rates will start increasing rapidly and those rates would have to be paid by Qatar.”

Unnamed Indian officials told Mining Weekly that offering a broader co-operation with Qatar was a strategic play that might actually help India obtain better terms and prices in a new long-term LNG purchase deal with the kingdom.

Inviting Qatari investments in Indian gas-fired power plants would act as an extra sweetener, transforming Indian-Qatari ties beyond a simple buyer-seller relationship, they added.

While LNG is already very cheap – spot prices for August delivery have fallen to US$5.60 per mmBtu (US$154.9 per 1,000 cubic feet) – some Indian companies are already securing spot cargoes at US$5 per mmBtu (US$138.3 per 1,000 cubic metres) and India’s government reportedly hopes to secure a price even lower than that in any new long-term supply deal with Qatar.

Push, but not too hard

India’s new-found assertiveness comes just weeks after Qatar cautioned Japan against pushing too hard for better terms in long-term deals, threatening to pull investment in the East Asian country. Such rhetoric seems unthinkable now, given Qatar’s considerably weaker position, and this presents an opportunity to India, which has long been pressing Doha for lower prices.

But India needs to retain ties with Qatar, so will be anxious to keep talks friendly. The chairman of Royal Dutch Shell’s Indian unit predicted last week that India’s gas market could expand more than six-fold by 2030 from current levels, driven by rapidly growing LNG imports.

The oil major also said in its LNG outlook report that demand growth from India, China and new entrants had absorbed supply growth in 2016 and that while global demand for gas was expected to expand by 2% per year between 2015 and 2030, LNG demand is set to surge by more than double that rate at 4-5%.

Although Qatar’s isolation has weakened its negotiating hand, India should be careful not to sour a relationship that remains crucial to its energy security.

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