India, the world’s fourth-largest consumer of energy, is likely to sign a $78 billion deal with Qatar, the world’s top exporter of liquefied natural gas (LNG), to extend its LNG imports for another 20 years beyond 2028 at rates that are lower than current prices, sources said. The deal will be signed between Petronet LNG Ltd, India’s biggest LNG importer, and QatarEnergy, on the sidelines of India Energy Week in Goa on Tuesday (February 6).
Why is this deal important?
The deal is important for India’s energy security and transition, as the country wants to increase the share of natural gas in its primary energy mix to 15% by 2030 from a little over 6% at present. Natural gas is seen as a cleaner and cheaper alternative to conventional petroleum fuels like diesel and petrol, and can help India reduce its emissions and dependence on crude oil imports.
The deal is also important for Qatar, which aims to expand its LNG production capacity to 126 million tonnes per year (mtpa) by 2027 from 77 mtpa, and has signed long-term deals with other major buyers like Shell. Qatar accounts for over half of India’s LNG imports, which totaled 19.85 mtpa in 2022-23.
What are the terms of the deal?
According to sources, the renewed contract will be at a lower price than the present deal, which 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). The fixed charge may not be there in the renewed contract, while the slope to Brent may be in the same range.
Additionally, the renewed contract will see supplies on the delivered ex-ship (DES) basis, instead of the current free on board (FOB) basis. In DES, shipping is arranged by the seller, while in FOB, it is arranged by the buyer. Moving to DES deliveries is expected to lower the landed price of LNG under the contract further.
The deal will extend the supply of 7.5 mtpa of LNG from Qatar to India till 2048. The current term contract between Petronet LNG and Qatar Gas is the biggest in India by supply volumes and is set to expire in 2028.
How will this deal benefit India?
The deal will benefit India in several ways, such as:
- Enhancing its energy security and diversification by ensuring long-term and stable supply of LNG from a reliable partner.
- Reducing its energy costs by securing lower rates and avoiding fluctuations in spot prices.
- Supporting its energy transition and climate goals by increasing the use of natural gas, which has lower carbon intensity and emissions than other fossil fuels.
- Boosting its economic growth and development by providing affordable and clean energy to various sectors like power, industry, transport and households.
- Strengthening its strategic partnership and cooperation with Qatar, which is an important regional ally and investor in India.
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