Game wrapped up. After engaging in diplomatic mindgames with Tehran for months, New Delhi has finally sewed up long-term LNG supplies of 5 million tonnes per annum.

India and Iran today signed the final sales purchase agreement valued at $20 billion for LNG supplies, the first consignment of which is expected to reach Indian shores by 2009. This is one of the largest overseas commercial deals signed by India. The contract price is estimated $3.51 per mmbtu. The contracted gas will be primarily used by the northern and western Indian markets to fuel power plants and manufacture fertiliser. Some quantities of this gas will also be used as non-polluting fuel for motor vehicles.

The 25-year supply contract is tied with the oil exploration interests of Indian oil companies, often referred to as oil-for-gas deal. India has been assured a 10% stake in the Yadavaran oil field and a 100% stake in the Juffair field, in return for lifting assured gas supplies from Iran.

India has also managed to build in a “pure supply deal” with Iran. This means that both Iran and India be liable to pay penalties either if Iran does not ensure timely supplies or India fails to lift committed quantities of gas. The two sides have also agreed to set up a joint monitoring committee to track investment commitments. The defaulting party will have to pay a penalty for its failure to meet deadlines.

This clause is of immense importance as the supplier is under obligation to make timely deliveries of the committed quantity. The Iran LNG contract, India's second after a similar deal with Qatar, has had its share of hurdles. For one, India has had to settle for only a 10% stake in the Yadavaran field, Iran's largest onshore gas field. China, the operator, has a significant stake in the field.

Officials say Iran declined more than 10% stake in this field as it probably wants to accommodate another multinational company in the venture. Right now, Iran is making an all-out effort to woo foreign investments both from Asia and the west, to muscle up diplomatic power against US threats. India's efforts to seal the entire deal for 7.5 million tonnes with additional stake in the exploration business will have to wait for some time. Iran is unwilling to commit or take long-term contracts at this point with elections due later this week. Also, the Iranians are demanding a higher price for additional quantities of LNG.

The price of $3.51 per mmbtu includes a fixed component of $1.2 per mmbtu and a variable component of about .065 points linked to Brent. The Brent price has been capped at $31 a barrel. The price of gas at the Iran border works out to around $3.21, to be delivered at $3.51 per mmbtu after taking shipping costs into account.

India and Iran are negotiating to source another 2.5 million tonnes of LNG to spruce up India's energy supplies. The two countries also signed a separate agreement on IOC and ONGC Videsh's plans to tap projects for oil exploration. Indications are that Iran is likely to offer exploration blocks in the North Pars region for OVL and IOC's plans to set up LNG plants and petrochemical complexes.