Conflict over the European formula

India and Iran may terminate the contract for the supply of liquefied natural gas

The next two-day meeting of the working group of the energy departments of India, Pakistan and Iran on the construction of a large-scale gas pipeline between these countries gave rise to a scandal that could lead to the collapse of trilateral negotiations on the project. Disagreements arose between Delhi and Tehran over the price of an already concluded contract (not related to the construction of the gas pipeline), according to which India must receive 5 million tons of liquefied natural gas annually for 25 years, starting in 2009. This agreement, which provides an option to increase supplies by another 2.5 million tons, was signed in early 2005, six months before the election of a new president in Iran, Mahmoud Ahmadinejad. At the end of last week, Iranian Deputy Oil Minister Mohammad-Hadi Nejad-Husseinian publicly stated following meetings in Delhi that Tehran wants to renegotiate the terms of that contract and increase the price of gas by more than half. Indian Minister of Petroleum and Natural Gas Murli Deora, in turn, believes that the deal has already been concluded and Iran should adhere to the signed agreement, and called the seller’s requests “unrealistic.”

At the end of last week, it turned out that back in May a letter arrived from Tehran to the Indian government in which partners were informed that the price of LNG ($3.25 per million British thermal units, or $159 per ton) agreed upon for the year ago, is invalid because the country's Supreme Economic Council did not approve it. They say in Tehran that it is completely inconsistent with the situation on the world hydrocarbon markets. “It is still possible that oil prices will reach $100 per barrel in the coming winter due to geopolitical issues and peak demand,” Mr. Nejad-Husseinian explained. “Iran signed the agreement and must implement it,” Mr. Deora said in response. - I don't think Tehran is close to an agreement with any other buyer. The price he is asking is unrealistic. If we agree, it will cost us an additional $12 billion."

Disagreements also arose during the discussion of the price of natural gas that will be transported through the pipeline (2,100 km long, with a capacity of 55 billion cubic meters per year and costing more than $7 billion) if it is built. As reported, India was ready to pay Iran $4.2 per million Btu (approximately $151 per thousand cubic meters). And the Iranians insisted on the European pricing level - $7.2 per million Btu ($259 per thousand cubic meters). Two weeks ago, the disagreement led to harsh remarks from Iranian officials. "If the Indian side is not ready to buy our gas at a realistic price, we have no obligation to sell it at a price below the market price," Oil Minister Kazem Waziri Khamane said.

However, the negotiation process on the gas pipeline did not completely collapse. “The governments of India, Pakistan and Iran want to implement this project,” it was stated after the meeting. In the near future, the Iranian leadership will select a consultant who, within a month, will present calculations on the fair value of Iranian gas and its acceptable price for buyers on the Iran-Pakistan border. At the same time, the head of the Pakistan Petroleum Secretariat, Ahmed Waqar, said that if India withdraws from the negotiations, Islamabad will continue to implement the project on a bilateral basis.

Alexey GRIVACHS