High global LNG prices, rising domestic output drags imports in January to 32-month low

India’s liquefied natural gas (LNG) imports plummeted to a 32-month low in January this year at 2,408 million standard cubic meters (MSCM) on account of surging international prices, which have been further exacerbated by the Russia-Ukraine war, and increasing domestic production. According to data published by Petroleum Planning and Analysis Cell (PPAC), the lowest import recorded before January 2022 was during May 2019, when in-bound shipments fell to 2,371 MSCM. This is barring the Covid-19 impacted 2020 where during April, the LNG imports sunk to a record low of 1,640 MSCM. Already, LNG imports during the October-December 2021 quarter at 7,896 MSCM were the lowest in the past six quarters. Besides in December 2021, LNG imports of 2,614 MSCM, on a provisional basis, was the third lowest in the last 12 months.

High domestic production

Deloitte India Partner & Leader (Energy, Resources & Industrials) Debasish Mishra, said, “The lower LNG imports can be attributed to the current high prices in international spot markets as well as crude-linked contracts. Thankfully for India, coinciding with the high global LNG prices, as per PPAC data, domestic production has gone up by almost 30 per cent in the last two years. This is mostly contributed by the offshore fields.” During FY22 (April-January), India’s natural gas production stood at 27,803 MSCM, which has already surpassed the output recorded during the pandemic-impacted FY21 at 27,784 MSCM. Similarly, during FY20, FY19 and FY18, India’s natural gas production stood at 30,257 MSCM, 32,056 MSCM and 31,731 MSCM, respectively.  ICRA Vice President and Co-Group Head, Prashant Vasisht, expressed similar views. He said, “LNG imports are low on account of high prices of spot gas as a result of which there has been some shift of demand from gas to petroleum products.” Similarly, Fitch Ratings in a report last month, said, “We believe rising domestic production and higher spot LNG prices are likely to constrain LNG imports during Q4 FY22 and H1 FY23. Natural gas consumption in April-November 2021 was up 9 per cent y-o-y as India’s economy recovered from the impact of the pandemic. However, LNG imports were down 2 per cent as higher demand was fulfilled by a steep rise in domestic production.”

Increasing global prices

According to India Ratings and Research (Ind-Ra), spot Asian LNG prices have been on an increasing trend with average LNG price for February 2021 delivery into North East Asia averaging $33.20-34.4 per million British thermal unit (mBtu), after a softening from the record high of $56 per mBtu. The International Energy Agency (IEA) said that tighter market fundamentals propelled Asian spot prices to all-time highs in October-December 2021, soaring to an average of over $35 per mBtu. Rising international prices of LNG has already inflated India’s import bill. For instance, LNG imported during April-January FY22 stood at 26,785 MSCM which cost the country $9.9 billion, whereas during the same period in FY21, India imported more gas (27,679 MSCM) for just $6.2 billion. India meets half its gas needs through imports by way of liquefied natural gas (LNG). Though India hardly imports LNG from Russia, the crisis has pushed up the fuel prices. This will raise the cost for industry. Rising fuel costs will jack up inflation and may prompt hardening of monetary policy by the RBI, raising the cost of living. It can impact prices of LPG, CNG, electricity as well as have a bearing on ferlitiser industry.

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Rising gas consumption

The IEA expects India’s natural gas consumption to grow 8 per cent y-o-y to around 34,949 MSCM in 2022 (CY) aided by an expanding infrastructure, strong GDP growth projections and supportive government policy. In the 2021 CY, the country’s natural gas demand stood at 32,360 MSCM.