BackEnergy PSUs wait for LNG prices to cool
Spot LNG prices have fallen to about $14-15 per metric million British thermal units (mmBtu) from an average of over $45 per mmBtu in the July-September quarter of the current fiscal.
PremiumNew Delhi: State-run oil and gas companies currently in talks with gas producers across the world for long-term liquefied natural gas (LNG) contracts have adopted a wait-and-watch approach anticipating a further softening of prices amid a volatile energy market and supply concerns.
While the talks have been on for over a year now, a major deal would be signed after prices ease further, said a person aware of the developments.
“Now may not be an apt time for sealing long-term contracts. Although prices have come down from the multi-year high levels, they may fall further with an easing of demand," said the person.
Spot LNG prices have fallen to about $14-15 per metric million British thermal units (mmBtu) from an average of over $45 per mmBtu in the July-September quarter of the current fiscal.
Indian public sector oil and gas majors including Indian Oil Corporation Ltd (IOCL) and GAIL have been looking for long-term contracts for procuring LNG with major international gas producers for the past one year after Russia’s Gazprom defaulted on contracted supplies to GAIL starting May 2022. This prompted a chase for supplies across the globe and turning towards expensive spot purchases.
Queries sent to the petroleum ministry, IOCL and GAIL remained unanswered till press time.
Indian companies have long-term LNG contracts for 22 million tonnes per annum. Gazprom stopped supplies as spot prices of gas far outpaced the price pegged under long-term contracts. Other state-run oil and gas companies, apart from GAIL have also enhanced their efforts to secure more and more long-term contracts for LNG.
Gazprom is yet to resume its supplies under the contract and talks between the two countries to resolve the issue are still underway, said another official.
GMTS had inked an agreement with GAIL for 2.5 million tonne of LNG supply per annum for 20 years, starting in 2018-19. While the Russian long-term LNG cargo started arriving in India in June 2018, the supplies have been stalled since May 2022 in the wake of the Ukraine war.
On 29 September 2022, Mint reported that India has reached out to the US, UAE, Saudi Arabia and Iraq for LNG supplies.
IOCL and GAIL are in talks with UAE’s Abu Dhabi National Oil Company (ADNOC) for a long-term supply contract. On 27 January, Mint had reported that the talks are at a fairly advanced stage.
According to sector experts, due to the growth in natural gas consumption of India from the fertilizer and city gas distribution sectors, India will remain heavily reliant on LNG imports despite the projected increase in the domestic natural gas production and long-term contracts are crucial as spot prices have been exorbitant and volatile as was seen in 2022.
Prices in the spot markets have however eased of late. A recent report from S&P Global Commodity Insights said that falling spot LNG prices are set to rekindle demand for the fuel in South Asia in coming months, with some countries already returning to the market through tenders.
“Prices have eased on weakening demand in northeast Asia amid expectations of mild weather and ample inventories, as well as an imminent restart of Freeport LNG in the US," it said.
India has been looking at diversifying its sources energy import in a bid to ensure energy security. India depends on imports for as much as 85% of its oil needs and 55% of its natural gas demand. So far in FY23 (April-January), India has imported LNG worth $14.88 billion, 36.46% higher than $10.90 billion during the corresponding period of FY22. Qatar has been the largest supplier to India so far, followed by UAE and the US.
Keeping in view the growing demand for gas for in the country the need for energy security, India is also planning a strategic gas reserve, which may come up as a joint venture of public sector companies or as a public-private partnership (PPP).
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
