Petronet LNG, QatarEnergy extend key LNG supply deal by another 20 years beyond 2028

“This (new agreement) is pursuant to extension of an existing LNG SPA (sale and purchase agreement) for LNG supply of around 7.5 mtpa LNG…on FOB (free on board) basis, signed on 31st July 1999 for supplies till 2028. Under the new agreement, LNG supplies will be made on delivered (DES) basis commencing from 2028 till 2048,” Petronet LNG said in a statement. The company, which is India’s largest importer of LNG or super-chilled gas, did not give pricing details of the contract.

Sources in the know indicated that LNG prices under the new contract would be lower than the current term deal and lead to savings for Indian buyers of imported gas. As per back-of-the-envelope calculations, the new pricing terms could result in savings of around $6 billion over the 20-year period, assuming a Brent price of $80 per barrel.

LNG in the existing contract is priced at a slope of 12.67% of Brent crude oil futures and a fixed charge of 52 cents per million British thermal unit (mBtu). According to sources, the fixed charge is not there in the renewed contract, even as the slope to Brent may be in the same range. Additionally, the shift to DES deliveries from FOB is expected to lower the landed price of LNG under the contract further. In DES, shipping is arranged by the seller, while in FOB, it is arranged by the buyer.

“Similar to earlier agreement of 1999, the LNG volumes under the new SPA shall also be offtaken by GAIL (India) Limited (60%), Indian Oil Corporation Limited (30%) and Bharat Petroleum corporation Limited (10%) after regasification primarily from Dahej Terminal of PLL on substantially back-to-back basis,” Petronet LNG said.

The LNG importer is a joint venture of Oil and Natural Gas Corporation, Indian Oil, GAIL, and Bharat Petroleum, and operates the country’s largest LNG regasification terminal at Dahej in Gujarat.

India wants to increase the share of natural gas in its primary energy mix to 15 per cent by 2030 from a little over 6 per cent at present. The country already depends on LNG imports to meet around half of its gas demand, and as demand grows, LNG imports are also set to grow. Qatar is the world’s largest exporter of LNG.

“This contract will provide momentum to India’s journey towards energy self-sufficiency under the farsighted leadership of PM @narendramodi Ji as India is transitioning into a gas based economy by increasing the share of gas in energy mix from 6% to 15% by 2030,” Petroleum Minister Hardeep Singh Puri posted on X (formerly Twitter).

According to Petronet LNG, the extension of the QatarEnergy term contract will ensure continued supplies of regasified LNG to major consuming sectors like fertilisers, city gas distribution, refineries, and power generation, among others. Petronet LNG’s Managing Director Akshay Kumar Singh said that the existing long-term agreement currently accounts for around 35 per cent of India’s LNG imports and is of “national importance”.

Apart from Qatar, Indian companies have term contracts for LNG from projects in Australia and the United States (US).

Qatar accounts for over half of India’s LNG imports. India imported a total of 19.85 million tonnes of LNG in 2022-23 (FY23), of which 10.74 million tonnes, or 54 per cent, came from Qatar, as per India’s official trade data. India’s total imports from Qatar in FY23 were valued at $16.81 billion, of which LNG imports alone were worth $8.32 billion, or 49.5 per cent of the overall imports from Doha.

Natural gas is seen as a significantly cleaner alternative to conventional petroleum fuels like diesel and petrol, and is usually cheaper than crude oil. For India, which has an import dependency of over 85 per cent in the case of crude oil, natural gas is seen as more affordable as well as a transition fuel in the country’s energy transition pathway.