The outlook for LNG imports
Lower inventory levels will ease the recent operational challenges, and enable higher imports of cheaper spot LNG, say analysts
Liquefied natural gas (LNG) imports to India fell by about 18% in February on a month-on-month basis. According to data from the Petroleum Planning and Analysis cell, LNG imports in February stood at 0.701 million metric tonnes (mmt), or 34.05 million metric standard cu. metre per day (mmscmd). The same measure for January stood at 0.941 mmt, or 41.28 mmscmd. These figures do not include Reliance Industries Ltd’s LNG imports. In fact, LNG imports are 32% down from the high seen last October. Why is that happening despite lower spot LNG prices? Simply put, demand has been terribly weak. One reason for the weak demand is reduced competitiveness, compared with liquid fuels (such as naphtha), thanks to sharp price declines. Moreover, Nomura Research analysts point out that the inventory levels have been high in the recent past. Weak LNG demand has meant that Indian gas firms could not reap the benefits of lower LNG prices in the December quarter. Having said that, LNG imports are set to increase in the days to come. For one, LNG sales in the country have improved in February on a month-on-month basis.
“With lower imports and higher offtakes, the stock levels at LNG import terminals, which had increased sharply in the last few months, should have eased, in our view,” wrote Nomura analysts in a note last week, adding that the lower inventory levels will ease the recent operational challenges, and enable higher imports of cheaper spot LNG. According to the brokerage, the reasons that could boost LNG demand from the next fiscal year onwards include: re-starting of the Dabhol power plant; return to operations of fertilizer units after their maintenance shutdowns; and higher demand from other sectors and industries such as steel, refining and city gas distribution. Other than that, the recent government announcement on importing regassified liquified natural gas (R-LNG) for supply to power plants should ease concerns of weak LNG demand in the country. Companies such as GAIL (India) Ltd, Gujarat State Petronet Ltd and Petronet LNG Ltd are expected to benefit from this development. Taking into account the 1.5-2.0 million tonne per annum of spare LNG import capacity available at Dahej (Petronet LNG), Hazira (Shell) and Dabhol (Ratnagiri Gas and Power Pvt. Ltd) terminals each, total gas sector volume can increase 20-25 mmscmd, said a report from JM Financial Institutional Securities Ltd. While the potential is substantial, as this column pointed out last week, more clarity will emerge only when power plants embrace the scheme.