Volatile LNG prices. Volatile LNG prices may stall India’s growing gas consumption

India, the world’s third largest energy consumer, could see its natural gas consumption decline from the levels of around 24 million tonnes per annum (mtpa) if liquefied natural gas (LNG) prices in the international market continue to rule in the range of $45 per mBtu.

Petronet LNG Chief Executive Officer AK Singh, in a post result media interaction on Friday, pointed out that spot LNG prices in international markets are presently in range of $45 per mBtu. In mid-May, prices were at $20 per mBtu before rising around mid-June due to geopolitical tensions. It went up to $51 per million British thermal units (mBtu) on July 27 this year.

When asked about the impact of high prices on demand, Singh said, “India is fortunate enough to have a good portfolio of long term contracts. The country’s demand is around 24-25 mtpa. Due to high volatility and prices, the increase in demand is not happening, but demand destruction is not to the extent that people in other parts of the world are experiencing.”

Assuring about availability of LNG supplies, he said India has long-term contracts of around 20 MT and the dependence on spot is not very high.

Demand destruction

Singh emphasised that “With gas prices moving up in this fashion, to sustain consumption in this situation is in itself a challenge. Growth comes when prices stabilise. Considering the geopolitical situations, we do not foresee that immediately growth will start.”

He, however, said that with infrastructure being built across the country, particularly for the city gas distribution (CGD) network, and the recent government policy on mixing LNG in domestic gas to meet CGD requirement, LNG will be bought for mixing with domestic gas for PNG and CNG consumers, even at high prices.

Fertiliser sector is the second priority and their prices have also hardened in the international markets. So a major portion of LNG is going for fertiliser production. There are certain consumers who switch over from gas to liquid fuels depending on the prices. So to some extent some demand destruction can happen, but it will quickly go back as soon as prices stabilise, he explained.

“We are watching the situation closely,” Singh said.

Spot prices

Petronet LNG does not see prices of LNG in the global markets coming down soon with Europe staring at stretched gas supplies during the winters.

“It is expected that in the coming winters, the situation may not soften due to the low gas inventory in Europe. Besides, Russia is reducing gas supplies through the Nord Stream 1 and there is winter stocking going on in Europe. The outlook being given is in the range of $45-50 per mBtu in winters. So immediately, it does not seem that prices will soften quickly. All are closely watching the Russia-Ukraine conflict. It all depends on geopolitical situation,” Singh explained.

Long-term contracts

Petronet LNG CEO said that company is in advanced discussions to renew its long-term contract with RasGas of Qatar after the existing long-term contract expires in 2028.

“We have a 7.5 MT long-term contract with RasGas up to 2028 and Qatar is expanding its capacity from existing 77 mtpa to 140 mtpa. So huge capacity is available beyond 2025-26 by Qatar. There is no dearth of LNG availability beyond 2025-26. We are in serious discussions with them for renewal of the long term contract. Earlier long-term contract was for almost 25 years. For the next contract, we are discussing the time period whether it will be 15 or 25 years and the terms. We have sufficient time to conclude the deal,” he said.

When asked about the price, Singh said “For long-term contract, it will be in the range of $10-12 per mBtu. But this is an indicative price. There is no fixed formula for long-term contracts. All the buyers think they should get a slope of 10 per cent, while suppliers wish they get 14-15 per cent.”