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India's energy muscle helps Petronet get better Qatar gas deal
December 31, 2015, 4:36 pm
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India's biggest gas importer Petronet LNG will buy liquefied natural gas (LNG) from Qatar's Rasgas at almost half the original price, in a renegotiated deal that will save it about $605 million a year.

The deal marks Prime Minister Narendra Modi's biggest diplomatic win in the energy sector since coming to power last year. He has been trying to leverage India's position as one of the world's biggest energy consumers to strike better bargains for its companies. It also shows how tumbling oil prices and a global gas glut are compelling exporters to offer better deals to retain their share in global energy trade.

Under the new contract, Rasgas will supply LNG to Petronet at $6-7 per million British thermal units (mmBtu) from 1 January, sharply lower than $12-13 per mmbtu agreed earlier, Indian Oil Minister Dharmendra Pradhan told reporters on Thursday.

The Qatari supplier has also waived off a $1.5 billion penalty against Petronet for lifting less gas than agreed, Pradhan said. "It's a win-win situation for both partners," said Pradhan.

"Qatar has been a good business friend, but we're now moving from the relationship of a buyer and a seller to long term partners." Reuters reported last month that the two companies were close to changing the terms of the deal to reduce the cost of gas shipments and avoid the penalty fee.

New Delhi estimates cheaper gas supplies will halve the input cost for local refineries, power and fertilizer companies from 2016, helping improve their profitability. "Their purchase cost will almost come down by 50 percent," said an oil ministry official involved in the deal. Petronet has a 25-year contract with Rasgas to annually buy 7.5 million tonnes of LNG. But it has reduced purchases by about a third this year due to high prices, substituting costly supplies from Qatar with cheaper spot shipments.

The fall in purchases, bigger than permitted under the original 2004 contract, made Petronet liable for the penalty.

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