This excerpt is from a report that is available to subscribers of Stratas Advisors’ Asia, Global LNG, Global Natural Gas and Middle East services.
On the heels of the plunge in LNG prices, Indian players have become some of the most aggressive in trying to renegotiate for favorable terms that are more reflective of the current market. Among them, Petronet LNG reneged on its contract with Qatar, refusing to take delivery on the volumes at their previously negotiated prices. Recognizing the state of the market and its own ability to be flexible, Qatar acquiesced and renegotiated the entire deal.
Now, it is possible that India again smells blood in the water with respect to Qatar. As the former looks to move to a gas-based economy, India is seeking to have Qatar become a partner in its gas-fired power plants as a condition for renewing LNG contracts.
Stratas Advisors certainly expects India’s 20 million tonnes of LNG import capacity to grow rapidly in the coming few years, but it should be noted that the historic bottlenecks within India’s power supply chain have not been a function of regasification capacity. Rather, many of the key gas-fired power plants in India do not have adequate access to gas pipelines, causing them to run at a much lower rate than that of which they are capable. As such, the proposal from India’s oil minister would include Qatari involvement in solving the problem of these stranded power plants in an effort to decrease the blackouts and power shortages that have hampered India’s economy.
Under the proposal, India would seek Qatar’s assistance in nearly all aspects of the power plants’ functioning, from gas supply access to output. The oil minister is selling it as a mutually beneficial opportunity, allowing that Qatar would share in the upside if they are able to increase the plants’ usage and efficiency. While it would seem that the rampant power shortages would have India’s back against the wall, it is the Petronet CEO who has said that the Qataris must act decisively on this offer if they want to keep India onboard as a major LNG customer.
The current import projects in India that are under construction or that Stratas Advisors identifies as having an advantaged path to construction in the short-term could effectively double India’s import capacity. With new liquefaction competing for a select few markets in Asia, Petronet and other Indian importers are using these conditions to their fullest advantage. Though the current diplomatic rift between Qatar and a number of its Arab neighbors has yet to materially affect LNG exports, it could cause enough unease to force the Gulf state into making these concessions if it continues for an extended period.
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