India rejects Qatar's gas offer: price too steep

India is looking to Qatar for more crude and natural gas supplies to meet the country's burgeoning demand for fuel, petroleum minister S Jaipal Reddy said at a Petronet function in New Delhi attended by Qatar's minister for industry and energy Mohammed Bin Saleh Al Sada and his delegation.

But at the same time, India has rejected Quatar's offer to ship an additional 5 million tonnes a year of liquefied natural gas (LNG) above the 7.5 mt it already supplies to Petronet under a 25-year deal, because the price demanded this time is too steep, says a Times of India report citing sources.

The report says Qatar sought at least 14.5 per cent of the prevailing price of Brent crude, which rose to $123 a barrel on Monday. India however wants gas prices to be de-linked from crude, as global gas supply is on the rise.

At an average Brent price of $110 per barrel, LNG will cost almost $16 per unit at the time of loading in ships at Qatari ports. After adding shipping cost, 5 per cent import duty, re-gassification cost, pipeline tariff and local levies, the gas would cost $20 per unit for the end-consumer. This would be three times the price of domestic gas, the report points out.

"On the pricing front, a major challenge is that for end consumers in India, gas has to compete with relatively cheaper fuels such as coal, especially in the power sector ... therefore, price fixation of gas, whether LNG from abroad or gas through trans-national pipelines, will have to be mindful of this reality," Reddy told the function to mark the founding day of Petronet, India's biggest gas importer.

In 2010-11, India imported 5.6 million tonnes oil from Qatar.