Aiyar bound for Iran to salvage LNG deal

Petroleum Minister Mani Shankar Aiyar will visit Tehran early next week to salvage the LNG-for-oil field deal, which hit an obstacle after Iran sought a very high price for the gas.

"I will be visiting Tehran to attend a conference. I will also try to finalise the liquefied natural gas deal that appears to have run into rough weather," Aiyar said here today.

In the last round of talks in Tehran late last month, Iran offered to sell 7.5 million tonnes of LNG to India at a price linked to Brent crude oil. It also doled out one more oil field to Indian firms to make New Delhi accept the LNG price that came to over $4 per million British thermal unit at current crude oil prices.

Petroleum Secretary SC Tripathi, who led the Indian delegation, refused to accept the Iranian formula, which arrived at the free-on-board price of LNG by taking 0.065 per cent of the prevailing Brent crude oil price and adding a fixed cost of $1.20 per million British thermal unit (mbtu).

At the current Brent crude oil price of over $45 a barrel, Iranian LNG will cost $4.125 per mbtu, over 60 per cent higher than $2.53 per mbtu price New Delhi is paying Qatar to buy a similar quantity of LNG.

After returning from Tehran, Tripathi said, "There was no agreement on the LNG price though the two countries reached an accord on developing the Yadavaran oil field, which Iran was offering to Indian companies to get New Delhi to buy 5 million tonnes of LNG."

Additionally, Iran offered the Juffair oilfield but wanted New Delhi to buy 7.5 million tonnes of LNG. Officials, who accompanied Tripathi to Tehran, said the import of LNG from Iran was a distant possibility, considering the price factor. "You can take that Iran deal is as good as gone."

Aiyar, however, did not say what his stand would be on the LNG price. The latest Iranian formula links the gas price to movement in Brent crude oil price and Iranian LNG will equal the Qatari price only when the Brent price falls to $20 a barrel, a scenario not likely in the near future.

Tehran had last offered 20 per cent stake in the 300,000 barrels per day Yadavaran oil field to get new Delhi to buy 5 million tonnes a year of LNG for 25 years, and then offered 100 per cent development rights on the Juffair oilfield, which could produce 30,000-40,000 barrels per day, an official said.

In both Yadavaran and Juffair oil fields, ONGC Videsh will get a fixed rate of return on the capital it invests in bringing the fields to production.

As per Iranian law, no equity oil (ownership of oil) by foreign firms is allowed and only a fixed rate of return is given to companies investing in oil exploration and production. With that money, the investing company may choose to buy oil.

The 20 per cent equity was equivalent to 60,000 barrels per day of oil.