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India signs mega LNG import deal with Iran

NEW DELHI, JANUARY 7: In a major breakthrough in the hydrocarbons sector, India today entered into an agreement with Iran to import 7.5 million tonnes per annum of liquefied natural gas (LNG), starting 2009, over a period of 25 years.

In turn, Iran will give Indian firms developmental rights in two producing oil fields—Yadavaran and Jufeyr..

The two countries broke the year-long deadlock on the issue of LNG pricing a day after the roundtable talks of principle Asian buyers and sellers, termed as ‘mini-OPEC’.

Iran had wanted to peg the LNG price to the Brent crude price, while India sought a fixed price contract. Finally, it was agreed that while Iran will sell the LNG to India at a price linked to Brent crude, there will be a ceiling.

So, for a unit of LNG, India will pay $1.2 plus 0.065 into the Brent crude price average. However, Brent price will have an upper ceiling of $31 a barrel. This implies that even if Brent crude price crosses $31 a barrel, 0.065 of $31 a barrel will be taken for calculating the price, translating into $3.21 dollars per million British thermal unit.

The total LNG deal between the two countries works out to around $35-$40 billion.

The LNG price for the first three years of supplies will be fixed at $2.97 per unit to try and make imports competitive with the Qatar price. Qatar is currently selling LNG to India at $2.53 per unit fixed price for 5 years up to 2008, after which its price will be linked to $16-$24 a barrel price band.

Though at the upper end of the band, Qatari LNG is expected to be cost competitive vis-avis the Iranian price, the final competitiveness will be linked to Brent prices from 2009. Giving details of the agreement, Petroleum Minister Mani Shankar Aiyar said that while Gail and IOC have signed an agreement with National Iranian Gas Export Corp to import 7.5 million tonnes of LNG for 25 years, ONGC Videsh Ltd (OVL) will get a 20 per cent share in the development of Iran’s biggest onshore oil field, Yadavaran, and 100 per cent in 30,000 barrels per day Jufeyr field.

The 20 per cent in Yadavaran will translate into 60,000 barrels per day of crude oil for India, Aiyar said. The LNG imported in India will be marketed by Gail, IOC, ONGC and OIL in the proportion of 40:25:25:10.

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