India asks Qatar to cut gas price, waive penalty

India has asked its largest liquefied natural gas (LNG) supplier Qatar to cut prices to match a 40 per cent slump in global rates and also waive the penalty for not buying all of the contracted fuel.

India has a long-term contract to buy 7.5 million tonnes of LNG a year at an indexation to a moving average of crude oil price. The price of LNG from Qatar comes close to $13 per million British thermal unit as compared to the $6-7 rate at which it is available in the spot or current market.

The difference has led to users preferring to buy spot LNG rather than long-term gas from RasGas of Qatar, leading to Petronet LNG Ltd buying 32 per cent less than contracted quantity in the first nine months of 2015.

Petroleum Minister Dharmendra Pradhan said the government is talking to Qatar to lower prices and adjust volumes not taken this year in subsequent duration of the contract.

 As per the contractual take-or-pay agreement, Petronet can defer taking deliveries of only 10 per cent of the contracted volumes in a year and has to pay for the rest of it even if it does not take any supplies.

"We are in discussions with Qatar. We are hopeful that with the changing LNG market and LNG pricing, RasGas will cooperate," Pradhan said. "Our Prime Minister has put this issue to the leadership of Qatar, I have talked to my counterpart in Qatar and our companies are actively negotiating."

The high price of LNG under the long-term contract has led to users in fertiliser and power industry finding it cheaper to use alternate fuels like naphtha and fuel oil.

Petronet LNG Ltd, which has been buying LNG from Qatar on a long-term contract since 2004, has reduced the annual offtake by 32 per cent this year because of the high price.

India is the fourth largest importer of LNG in the World.