Iran is negotiating with Indian state-owned majors IOC, GAIL and BPCL for the sale of 2.5 million tonnes of LNG.

While LNG prices are linked to the global oil price movement in long-term contracts, this is the first time that NIGEC has put forward such a condition while negotiating LNG supply to Indian buyers, according to a report in India’s Economic Times.

These long-term contracts fuel large projects in vital sectors such as power and fertilisers, and if supplies are suddenly withdrawn it might not be possible to provide back-up at short notice. Under such circumstance, the buyers could be forced to pay extremely high prices.

Senior Indian petroleum ministry officials told the Economic Times that Iran also refused to concede the standard practice of agreeing to a price band, with a floor and ceiling, to arrive at a long-term contract price.

In the past, India has done similar deals with Qatar with a minimum price of $US16 per barrel and maximum of $US32 per barrel. This price band insulates both the buyer and seller of LNG from volatility in oil prices.

But NIGEC seems to be taking the view that oil prices are not likely to come down any time soon and it is driving a hard deal in a rising market.

Meanwhile India is also having problems with Iran over a previous 5 million tonnes per annum LNG deal.

The new Iranian regime has not yet ratified the memorandum of understanding for the earlier deal and NIGEC is arguing that work on the project cannot begin without the new government’s formal approval.