Petronet LNG may raise rates in January

Fertiliser and power plants, which use gas supplied by Petronet LNG, will see their fuel bills rise by up to 50 per cent from January when the country's largest importer of natural gas goes for a price revision.

This is expected to increase cost of production for both power and fertiliser units by up to 30 per cent, as fuel constitutes a significant portion of the total cost. As fertiliser prices are capped by the government, the already high fertiliser subsidy bill is also expected to rise significantly.

“The management of Petronet LNG has indicated that the price of long-term gas could go up by around a dollar,” said an official of a fertiliser company which gets gas from Petronet’s Dahej terminal. Petronet has a facility to regassify imported natural gas here.

Petronet’s Managing Director Prosad Dasgupta said, “There is some sense on what the new price is going to be. But we can not talk about it at this moment.” The price revision is significant as Petronet caters to a quarter of India’s natural gas demand.

Petronet imports 5 million tonne per annum (mtpa) of liquefied natural gas (LNG) from Qatar-based Ras Gas, one of the world's largest LNG producers, at $2.53 per million British thermal unit (mBtu). This price is arrived at through a formula which connects the price of the gas to the Japanese Crude Cocktail, a variety of oil which trades at around a couple of dollars discount to the Brent crude oil. The current gas price is benchmarked to oil prices of around $30 per barrel. Oil is currently trading at around $90 per barrel.

Petronet sells gas to transporters such as GAIL India and Gujarat State Petronet (GSPL) – who in turn distribute it to end users such as fertiliser companies, power plants and city gas distribution companies at around $4.5 per mBtu after addition of transportation cost and taxes. Its main buyers are fertiliser companies such as Kribhco, Iffco, Chambal Fertilisers and Shriram Fertilisers. The country's largest power producer NTPC also buys gas from Petronet.

Petronet also imports another 1.25 million tonnes of LNG from Ras Gas, the delivered price of which is close to $8 per mBtu. This contract expires in September 2009, and is meant solely for the power plant at Dabhol in Maharashtra. In order to provide relief to the beleaguered Dabhol plant, the government had last year “pooled” the prices of the gas from the two contracts.

This resulted in an average delivered price of around $5.9 per mBtu for LNG from Petronet’s Dahej terminal, on official with a pipeline company said.

The price for the short-term LNG contract is also subject to a review in January, which could push up prices to around $15 per mBtu, driving up the average price of the two contracts to around $9 per mBtu in January 2009.

The 25-year LNG contract with Ras Gas has a pricing formula that has a provision of monthly price revisions from January 2009 in line with the price of Japanese oil.