QatarEnergy Nearing Agreement for LNG Supply to India

Qatar Energy is on the verge of finalizing a substantial, long-term agreement to supply liquefied natural gas (LNG) to buyers in India. This impending deal, anticipated to feature more competitive pricing and flexible terms, is poised for completion either by the end of this month or in early February. If successfully sealed, the new contract would extend the duration of existing supply agreements set to expire in 2028, potentially lasting until at least 2050.

At present, Qatar provides Indian purchasers with 8.5 million tonnes per annum of LNG. The impending agreement carries strategic importance for India, aligning with its aspiration to raise the proportion of natural gas in its energy blend to 15% by 2030, a noteworthy escalation from the current 6.3%.

The pricing structure of Qatari LNG traditionally hinges on oil prices, utilizing a formula based on a slope or a percentage of crude. The ongoing negotiations suggest that the new deal might be pegged at around a 12% slope of Brent crude per million metric British thermal units. Another proposed pricing approach for supplies to India contemplates a range of 12–12.5% on a free-on-board basis.

In the face of escalating competition, notably from the United States, Qatar is strategically positioning itself within the global LNG market. It aims to bolster its liquefaction capacity from 77 million tonnes per annum (mtpa) to 126 mtpa by the year 2027, Qatar is keen on solidifying its presence in both Asian and European markets. Recent long-term agreements with major European energy companies such as Shell, TotalEnergies, and Eni underscore Qatar's commitment to maintaining a robust international LNG footprint.

The expected deal with India might be officially revealed at an upcoming energy conference slated to occur in India from February 6 to February 9, 2024. Under the existing arrangement, Petronet LNG, India's foremost gas importer, imports 7.5 million tonnes per annum of LNG from Qatar at a slope of 12.67% and a fixed charge of $0.52. Furthermore, Indian Oil, Bharat Petroleum, and GAIL (India), with stakes in Petronet, collectively purchase an additional 1 million tonne per annum of LNG.

Notably, the envisaged deal is expected to confer greater autonomy upon Indian buyers, allowing them to select the receiving terminal within India. This newfound flexibility has the potential to yield substantial cost savings for Indian companies, possibly mitigating expenses associated with pipeline transportation within the country's grid. Presently, Qatar delivers LNG exclusively to the western state of Gujarat, but this shift in flexibility could open avenues for more efficient and cost-effective logistics for Indian companies involved in the LNG trade.