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Qatar agrees to waive $1 billion penalty on India for breaking a long-term LNG contract

24 Nov 2015 Evaluate

In a positive move for the domestic oil & gas sector, after months of intense negotiations RasGas of Qatar has agreed to waive $1 billion penalty on India for breaking a long-term liquefied natural gas (LNG) contract. Besides, RasGas has in-principle agreed to changing the current pricing formula based on a 60-month average of a basket of Japanese crude oil prices to a 3-month average of brent crude. This move will lower cost of LNG to $7-8 per million British thermal unit as compared to $12-13 currently.

India's biggest importer of LNG, Petronet LNG, has to pay for buying only 68 per cent of the contracted 7.5 million tons this year. As Petronet was taking only 68 percent of the volumes it agreed to in 25-year contracts with RasGas after a slump in global energy prices led to gas being available in spot or current market a roughly half that rate. The reduced offtake by the buyers forced Petronet to cut its purchase from RasGas

Earlier, state-owned GAIL India, Indian Oil Corp (IOC) and Bharat Petroleum Corp (BPCL) have committed to buy all of the 7.5 million tonne a year of LNG that Petronet is to import from Qatar. But with slump in global prices, they have opted to buy gas from spot market rather than use the long-term LNG. This resulted in idling of three cryogenic ships it had chartered hired for ferrying gas in its liquid form at sub-zero temperatures from Qatar to its import terminal at Dahej in Gujarat. According to the current deal negotiated, Petronet will take the quantities it did not take this year during the remainder of the contract period.

In the past year, the price of delivered spot LNG delivered tumbled more than 50 per cent to about $6.80 per million Btus. Whereas, the price of benchmark natural gas futures in the US tumbled 38 per cent in the past year, falling to lowest in more than three years.

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