NEW DELHI, Feb 3 (Reuters) - India's Petronet LNG will lease out almost half of the capacity at its Dahej liquefied natural gas (LNG) terminal to state companies from 2017 as prices for the high-cost fuel have cut demand, its head of finance told Reuters on Monday.
LNG has only made tiny inroads into India, because the government sets low prices for domestic output, deterring buyers of the fuel and discouraging investment in LNG infrastructure even though the country faces massive energy shortages.
Petronet, the country's biggest LNG importer, and GAIL , India's largest gas pipeline company, both operate their LNG facilities below capacity.
Petronet has now signed 20-year deals to lease a total 6 million tonnes of the Dahej terminal's annual capacity from 2017 to GAIL, Indian Oil Corp, Bharat Petroleum Corp and the GSPC Group in western Gujarat state.
It will also lease 1.25 mtpa of capacity to GSPC from April this year for 20 years once a second jetty at the terminal is operating, likely in March 2014, he said.
"As a terminal operator, it gives me assurance ... that irrespective of price our terminal will operate at full capacity," R.K. Garg said.
The contracts are on a use or pay basis, meaning the state companies will have to pay even if they don't use the facility.
State-run firms see a potential rise in LNG imports to meet the local demand as the country struggles to arrest a decline in its local output.
Gas demand in the country is expected to rise to 473 million cubic metres a day (mmscmd) by 2016/17, up from 286 mmscmd in 2012/13, when domestic output and LNG arrivals were only able to meet about 50 percent of the demand.
In the fiscal year that ended March 31, 2013, only about a quarter of the available supply came from LNG.
India's domestic gas prices are currently set about $4.20 per million British thermal units (mmBtu), against benchmark Asian LNG prices of about $19/mmBtu LNG-AS.
Petronet's Dahej terminal in western India now has a capacity of 10 million tonnes per annum (mtpa), but that will be expanded by 50 percent by end-2016, Garg said. The company has approval to raise the capacity to 20 mtpa if required, he added.
Petronet currently takes 7.5 mtpa of LNG from Qatar's RasGas under a long-term contract and buys the remaining 2.5 mtpa under spot and short term deals as needed.
In the most recent December quarter Petronet regassified about 12 percent less LNG than a year ago, as demand for the high-priced fuel declined.
The quantity Petronet buys through spot or short term deals will fall to 1.25 mtpa in the 2013/14 fiscal year, when the first deal with GSPC goes into effect, Garg said.
When Petronet has completed the Dahej expansion and when all the lease deals are in force in 2017, the amount it takes on spot or short-term deals will fall to just 0.25 mtpa, he said.
Petronet will continue using half of the Dahej terminal's capacity to take LNG from Qatar.
Petronet also operates a 5 mtpa terminal at Kochi in southern India. (Reporting by Nidhi Verma; Editing by Tom Hogue)