‘Re-negotiated Qatar gas deal giving daily gain of $5/mmBtu’
“From January 1, we are getting daily advantage of $5 per mmBtu,” said Prabhat Singh, Managing Director and CEO, Petronet LNG Ltd, on the recently re-negotiated price for the long-term gas contract with Qatar’s RasGas. Stating that the need to re-negotiate the rate had become more pertinent when PLL, as a buyer, was not getting advantage of the low price, Singh said, “Now we have done away with all such things (conditions) and linked it (price) as close as possible to market price.” With the RasGas price sorted out, Singh says attention is now on making PLL’s Kochi terminal a money-making project. Excerpts:
How different is the pricing dynamics of the re-negotiated contract with RasGas vis-Ã -vis the earlier contract? Long-term contract always comes at a premium, what is the figure we are looking at?
A formula was given in 1999, which was based on three-month Brent crude pricing. But, in 2003, it was re-negotiated and became linked to one-year average with floor and ceiling price for five years. This floor and ceiling was being applied on the last one year price averages. Even this formula was kept in such a way that for the first five years it was a fixed price — from 2004 till January 1, 2009.
Till 2013, the averaging was such that the ceiling price was always hit, giving us an advantage. But, from January 1, 2014, we started hitting the floor price. The advantage of low gas price was not available to us and we were always paying more than what was the prevailing rate.
For example, if crude was at $80 per barrel, the floor was at $110 per barrel. The $12.5 per mmBtu price that we were paying till December 31, 2015, was based on the crude price at $96 per barrel, while it had fallen to $40 per barrel. But, now we have removed such things and linked it as close as possible to the market pricing. Yes, there is always a premium in the long-term contract, while spot can keep fluctuating. Due to commercial reasons I cannot share the details of the formula with you.
Is the negotiated price for the entire 8.5 mtpa?
We actually have three contracts with RasGas – 5 mtpa, 2.5 mtpa, and one mtpa. The re-negotiating has taken place for the earlier two contracts with a combined supply of 7.5 mtpa. Having said so let me clarify that the latest one mtpa contract as well as the re-negotiated one, both are linked to market price.
However, it may not be correct to say that both are at the same price because there is a deal which has happened between us and RasGas for 7.5 mtpa. In the 7.5-mtpa contract, we were incurring a daily loss of ?25 crore. Now, we have knocked off the condition of ‘take-or-pay’.
Everyone is talking about the waiving off of ?12,000 crore penalty by RasGas. Was it actually penalty or were you compensated with supply subsequently? What is the gas quantity we are referring to?
Under the earlier contract, even if I did not draw the committed offtake during the given period, I still had to make a payment. But, I could lift gas at a later date. So it was more of a cash-flow issue as far as we were concerned and for them it was that they would have to give us gas at a later date. For RasGas, it was advance payment…
There was an advantage with that mechanism also, which people often don’t understand. If we had paid for the take-or-pay obligations and taken the gas later, we could have gotten an extra volume. For example, if we had paid on the basis of $12.5 mBtu now and asked for an offtake at $7-7.5 mBtu, then we would have gotten additional volumes for that remaining $4.5 mBtu. So we were getting a bit of a buffer under that mechanism. It may be 2.5 million tonne or it may be more than that.
Australia’s Gorgon project gas is meant for Kochi terminal. Does the contract with Exxon give you flexibility of destination? What is the strategy to make Kochi viable?
Gorgon contract will have some amount of flexibility in the destination. In case we do not want it at Kochi, we can take it at Dahej. For Kochi though the pipeline is being installed by GAIL (India), it is more important for Petronet. After RasGas, the main focus is to give complete shape to this pipeline. It is the 100-120 km stretch of the entire pipeline where there is a problem. So, if GAIL is worried about this project becoming an NPA, then it can give 50 per cent equity in this pipeline to Petronet. I still need to get clearance from our board.
Besides, I also propose that in the problem area we can put L-CNG stations. The numbers are yet to be worked out, we can sell at a discount.
How will you deliver L-CNG?
It will be in a liquid form only. It will be re-gassified at the station. Our team has visited China, where this has already been implemented. Maximum, within a year we can give L-CNG to households. For the houses, we will have a storage unit at the station to provide the cylinders. The L-CNG stations will be put up all the way till Mangalore for vehicular fuel. This is to make it viable for the vehicles plying along that stretch. They must have the incentive for retro-fitting their vehicles. For retro-fitting, we have suggested doing it for 30,000 trucks. This generates interest in the industry.
I am meeting with Tatas who are ready to retro-fit 100 trucks. According to me, within two years, the pipeline will be in place, and within one year, we will start gas supplies in Kerala.
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