Iran scraps deal to sell LNG to India

Nov 20, 2008 01:00 AM

Iran says it has scrapped a $ 22 bn deal to sell 5 mm tpy of liquefied natural gas, or LNG, to India due to a dispute over prices and lack of required approvals.
The deal was signed in 2005 between National Iranian Gas Export Co., or NIGEC, and Indian companies GAIL (India), Indian Oil Corp. and Bharat Petroleum Corp. Iran later demanded a higher price than the $ 3.215 per mm Btu, to which India raised objections.

"The deal is dead because the whole arrangement was based on the clause that unless the National Iranian Oil Co's (NIOC) board of directors approve the deal, it will not be approved. The board of directors did not approve it," an Iranian government official told.
"It was just a primary agreement signed between NIGEC and three Indian companies. Though on record the talks are still on, for all practical purposes the deal is off."

NIOC is the parent company of NIGEC.
"Recently, there have been some positive developments after the Iran visit of our external affairs minister," said a top official in India's ministry of petroleum and natural gas. "Discussions will again take place for the LNG deal. These are international negotiations and nothing can be said until it is formally communicated to us."

External affairs minister Pranab Mukherjee was in Tehran recently to attend the meeting of the India-Iran joint commission, which promotes bilateral cooperation. The proposed $ 7.4 bn Iran-Pakistan-India pipeline project is also expected to fall through, even as Iran faces economic sanctions by the US and its allies over its nuclear programme, which Washington suspects is aimed at developing nuclear weapons but Teheran says is designed to produce electric power.
"While Oman is negotiating with Iran to import gas for converting it into LNG to re-export it in the international market, India wants to import gas from Oman at a higher price than Iran. There is some pressure from the West on India," the Iranian government official claimed.

India imports 7.5 mm tpy of LNG in spot markets, which is sourced by Petronet LNG and Shell India. Iran has the world's second largest oil and natural gas reserves. India is short on natural gas that is expected to last till 2012 -- the country needs at least 180 mm cmpd of gas, and the supply is at 81 mm cmd. India imports some 12 mm cmpd of gas bought in spot markets. State-owned NTPC, the country's largest power generation utility, is in talks with Iran to buy 5 mm tpy of LNG.
"Had India been able to secure the deal even at $ 5 per mm Btu, it would have been a great deal. However, not converting it into an assured supply at current crude prices, will be a big miss," said Prayesh Jain, an analyst at stock market research firm India Infoline.

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