Indian Gas Importers Cut Spot Market Purchases
Domestic gas demand drops 7% in April over March while LNG imports drop 11%
Indian gas importers are sharply cutting spot market purchases, diverting already-purchased liquefied natural gas (LNG) cargoes, and rescheduling even some longterm deliveries as Covid-linked lockdowns hit demand and prices stay high in the spot market.
Domestic gas demand has dropped 7% in April over March while LNG imports have dropped 11%. The demand has shrunk further in May with lockdowns becoming stricter and extending to more states. The city gas segment has been hit the hardest with compressed natural gas (CNG)-driven vehicles staying off the road and small factories shut. With refined fuel demand dropping nearly 10% month-on-month in April, refiners have cut their runs, contributing to a reduction in domestic gas demand.
GAIL, the country’s largest gas marketer, has diverted cargo to Kuwait while Petronet LNG, the nation’s largest LNG importer, has rescheduled some of its deliveries, sources said. A refiner and a steelmaker too are learned to have deferred their shipments.
“Spot cargoes are barely visible these days at our terminal,” said an executive at a company that manages an LNG import terminal that is receiving fewer cargoes this month. Spot and short-term supplies comprise about half of India’s total LNG import. Monthly supplies under long-term contracts are being adjusted as per the domestic demand but industry executives are optimistic about meeting the full annual commitment this year.
It is the spot market that is bearing the brunt. After prices fell to record lows of $2 per mmBtu last year, Indian gas buyers jostled to book spot cargoes, replacing some of their long-term supplies with spot. But with spot prices now hovering between $9 and $10 per mmBtu, domestic gas users are shunning it.
LNG under the long-term contract between India and Qatar currently enjoys the cost advantage of nearly a dollar per mmBtu over spot purchases, an industry executive said, adding that some gas users may swap originally-planned spot purchases with long-term supplies. Since long-term contracts are mostly linked to crude prices, they are still lower than spot rates. This could help GAIL increase the sale of its long-term US LNG in the domestic market at crude-linked prices, an industry executive said.
Given the current demand and expected expansion in the domestic gas supply, the import of LNG will likely further shrink in the coming months. LNG currently comprises half of the country’s gas demand but ONGC’s and Reliance-BP’s new supplies from the KG basin in the coming months are expected to slash domestic buyers’ interest in the expensive LNG.