Qatar's Rasgas May Start Selling LNG To India Earlier; Petronet Deal Soon.

The Ras Laffan Liquefied Natural Gas Co. (Rasgas), the second LNG venture in Qatar, wants to begin liquefied gas deliveries to Petronet LNG of India in 2001, one year ahead of the agreed schedule. Led by Mobil and the state-owned Qatar General Petroleum Corp. (QGPC), Rasgas is due to sign a sale and purchase agreement (SPA) with Petronet before end-1998.

Along with the SPA, as an incentive, Rasgas and Mobil LNG and Power will each acquire a stake in Petronet LNG under separate agreements. A flexible pricing formula will be the main incentive for Petronet to begin to buy the LNG in 2001.

Petronet now is a consortium grouping the four biggest energy companies in India: Gas Authority of India Ltd.(Gail), Indian Oil Corp. (IOC), Oil & Natural Gas Commission (ONGC) and Bharat Petroleum Co. (BPC).

Petronet is to build a 5 million tons/year LNG-receiving and regasification terminal at Dahej in Gujarat, and a 2.5m t/y terminal at Cochin in Kerala by 2002. It has plans for a later stage to build two other terminals, one at Ennore at Tamil Nadu and one at Mangalore in Karnataka.

Mobil and QGPC want at least one of the terminals to be built on fast-track basis by 2001 to receive 2.5m t/y from the Rasgas LNG plant, which will start up in April 1999 with a capacity of 6.6m t/y. They are worried that Seoul's Korea Gas Corp. (Kogas), which in end-June 1997 signed a 25-year contract with Rasgas to buy 4.8m t/y of the LNG from mid-1999, may only take a part of the agreed volume in view of the economic crisis in South Korea.

Rasgas, with the help of Mobil, QGPC and other partners, has been trying hard to secure additional buyers. Mobil is betting on several short-term buyers in Europe and Asia for the period between mid-1999 and end-2000. These include Edison Gas of Italy, which will buy 1m tons of Rasgas LNG in 1999 and 2000.

Edison will sign a 25-year agreement with Rasgas for 3m t/y as soon as a 4 BCM/year terminal on an artificial island off the Po Delta in the northern Adriatic Sea has been completed. This will be a JV with Mobil, which has developed a technology for offshore LNG terminals, and Edison could become a major client for Rasgas LNG.

Rasgas is worried that there would be a gap in 2001, the reason why Mobil and QGPC want to see at least one of the Indian terminals of Petronet built by then.

Rasgas was selected by Petronet at its sole LNG supplier last September. But the Indian side said it would only begin receiving the gas in 2002, under a 20-year SPA, because its plants would not be ready before that date.

The Indian consortium and Rasgas had signed a memorandum of understanding in Doha on Jan. 11 this year, as the governments of Qatar and India agreed to intervene should the two sides face any difficulty in the negotiations. Rasgas won the deal in September against competition from Shell, Total of France, the Shell-led Woodside of Australia, Chevron, Pertamina of Indonesia and Petronas of Malaysia.

Rasgas was best placed to take the deal because, unlike the other six competitors, QGPC and Mobil gave a promise of price flexibility as well as partnership in Petronet's terminals. Mobil LNG & Power also offered to be a partner in a proposed power plant to be built near one of the terminals. Other partners in Peatronet are expected to include Gaz de France (GdF), which advises the consortium, National Thermal Power Corp. (NTPC), and other Indian companies. NTPC operates a gas-fired power plant near Dahej, and other plants along a 1,700 km gas pipeline between Nazira (Gujarat) and Jagdishpur (Uttar Pradesh). It has a gas-fired power plant being built at Kayamkulam, in Kara.

Rasgas is owned 63% by QGPC, 25% by Mobil, 5% by a South Korean group including Kogas, and 7% by two Japanese trading groups - Itochu (4%) and Nissho Iwai (3%). Its two 3.3m t/y trains, to be on stream in April 1999, constitute a first phase. The second phase will involve another two 3.3m t/y trains to be built in the next decade, but the partnership in that Mobil-led venture would be different; it could include Elf Aquitaine of France and Sumitomo Corp.

of Japan, if these companies manage to secure firm buyers.

Rasgas' profitability depends on the positions of Petronet LNG and Kogas. If India's economy keeps growing at the pace projected in New Delhi, this market for gas will expand rapidly in the next decade. South Korea, which had been projected as a premium market before the economic crisis hit it hard in 1997, may recover by 2002.

The Indian Tax Barrier: However, the prospects for LNG exporters to India are not likely to improve if New Delhi and local governments continue to impose a high tax barrier. A combination of import taxes have raised the barrier to LNG to 28%. The major Indian and foreign energy companies have been lobbying them to lift this barrier, or at least lower it, in order to encourage the import of LNG on a large scale.

The companies, including Western majors, have argued that such a barrier would eventually work against India's energy security interests. They point to the fact that Japan, the US and Europe do not levy import taxes on LNG. South Korea and Taiwan only charge 5% on LNG imports.