Petronet pays Rs400 cr quarterly demurrage as PSUs refuse to lift costly gas

Petronet LNG Ltd, which had contracted to buy costly gas from Qatar Gas for 25 years, way back in 2003, is now finding it difficult to market the gas as prices have plummeted.

With slump in global prices, PSU buyers such as GAIL, IOC and BPCL, have opted to buy gas from spot market rather than use the long-term LNG.

India's biggest liquefied natural gas importer is now forced to shell out Rs400 crore every quarter in demurrage charges for ships idling because of its customers, mainly public sector undertaking (PSU), are refusing to buy expensive imported gas.

Petronet, however, is taking only 68 per cent of the volumes it had agreed to in the 25-year contracts with RasGas of Qatar as gas is available in spot market at roughly half that rate.

State-owned GAIL India Ltd, Indian Oil Corp Ltd (IOC) and Bharat Petroleum Corp Ltd (BPCL) have committed to buy all of the 7.5-million tonnes a year of LNG Petronet was 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, senior officials said.

The reduced off-take by the buyers forced Petronet to cut its purchase from RasGas. 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.

''The cut in volumes has meant that on an average one out of the three ships is idling,'' an official said.

But, as per charter hire conditions, Petronet continues to pay the day rates. ''The demurrage charges come to about Rs400 crore per quarter,'' he said.

While LNG in the spot market is available at $7-8 per million British thermal unit, the price of gas under the long-term contract with RasGas is close to $13 per mmBtu.

Pricing of LNG under the long-term deal is linked to the previous 12-month Japan Crude Cocktail (JCC), including caps and floors based on average JCC prices of the past 60 months.

Petronet had hired two LNG tankers of 138,000 cubic meters capacity and one tanker of 155,000 cubic meters capacity from a consortium of shipowners led by Mitsui OSK Lines Ltd of Japan for transportation of 7.5 million tonne per annum of LNG from Qatar to Dahej.

The time-charter agreement is valid till 30 April 2028. The two 138,000 cubic meters ships were hired at a dayrate of $68,900 while the bigger one charges $72,880 a day.

While two LNG tankers Disha and Raahi were pressed into service in 2004, the third tanker ''Aseem'' came into service in November 2009.

The hire rate per ship consists of a non-escalating element of $57,900 per day and an escalating amount of $11,000 per day to be escalated at a maximum rate of 3 per cent per annum.

State-owned GAIL, IOC, BPCL and Oil and Natural Gas Corp (ONGC) hold 12.5-per cent stake each in Petronet, which has a 10-million tonnes a year import terminal at Dahej.

Petronet also has a 5 million tonne a year LNG import terminal at Kochi, Kerala, and is planning to set up a similar capacity terminal at Gangavaram in Andhra Pradesh.