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The US displaced the UAE to emerge as India’s second largest supplier of liquefied natural gas (LNG) in 2023, accounting for 3.09 million tonnes (MT). LNG is emerging as a substitute fuel in the transition towards green energy.
Analysts attributed the development to weakening LNG prices in international markets as well as India’s proximity, via the Cape of Good Hope, to US LNG cargoes compared to North Asia. The US also emerged as the world’s largest LNG exporter in 2023.
According to the world LNG report 2024 by International Gas Union (IG), released earlier this month, the US supplied India 1.8 MT LNG in the pre-pandemic period (2019) and the quantity increased to 3.86 MT in 2021.
Evolving trade dynamics
India, the fourth largest LNG importer, scaled back in 2022 owing to rising prices and shipments from the US declined to 2.16 MT.
On the other hand, the UAE’s share rose from 2.6 MT in 2019 to 3.32 MT in 2020, slipped to 2.59 MT in 2022 and again rose to 2.85 MT last year.
Qatar remained India’s largest LNG supplier for five years running (2019-2023); cargoes topped 10 MT, barring in 2019 when it stood at 9.7 MT. In 2023, shipments from Qatar rose to a high of 10.92 MT.
Another notable development during this period is the decline in the share of African nations in India’s LNG imports.
According to IGU data, Nigeria and Angola, which supplied 2.7 MT and 2.9 MT LNG, respectively, to India pre-pandemic (2019), saw their cargoes shrink to 0.73 MT each in 2023.
The share of both African nations has been declining since 2021.
Rising imports
Kenneth Foo, Associate Editorial Director at S&P Global Commodity Insights, said the US was the standout exporter in the global LNG market in 2023, overtaking Qatar and Australia with strong growth in liquefaction capacity due to investments made several years ago. Total US LNG exports were about 15 per cent higher year-on-year at 89 MT.
“With India at closer proximity via the Cape of Good Hope for US LNG cargoes, compared to North Asia, sellers were more incentivised to sell volumes to India to save freight costs. The ongoing US long-term contracts signed by Indian entities also continued to underpin LNG consumption,” he told businessline.
On the decline in cargoes from Africa, Foo pointed out that Nigerian LNG exports faced significant challenges in the last two years. The country’s LNG export facility at Bonny remains under force majeure since October 2022 due to disruption in gas feedstock supply.
“Other LNG supply from African countries like Angola has flowed to destinations that are willing to pay price premiums such as Europe across 2022-23. Middle-east volumes remain the mainstay of supply to India due to geographical proximity and significant long-term volumes agreement,” he added.
On LNG cargoes in 2023 staying below the levels recorded in 2019-21, he pointed out that from 2019 to 2021, LNG prices were significantly lower, enabling Indian companies to buy spot volumes at market prices.
“Indian companies continue to be price-sensitive, and the various fuel-switching alternatives such as naphtha/ fuel oil for refiners, fuel oil and LPG for industrials, and gasoline/gasoil for transportation mean that LNG prices need to be low enough for imports to grow into 2024. Expectations are that, if prices remain below $12 per mBtu, there would be significant import growth potential for India,” Foo added.
Price pressure
Foo, while sharing insights on the energy outlook for H2 2024 in June this year, had said that LNG companies were facing challenges in securing long-term contracts due to lack of transparency in pricing for oil-linked or gas-hub linked LNG contracts.
With lower LNG prices expected over the rest of the decade, the oil formulas for such 10-year or longer-term contracts have been fluctuating lower (from close to 13 per cent last year, to 12 per cent and below). There is a potential risk of importers being locked into term contract prices that are out of sync with prevailing prices when the contracts start from 2026, he explained.
To remove the price risk for LNG importers, it would be desirable to create an even stronger index link between LNG import prices and domestic gas prices, he stressed.
“S&P Global Commodity Insights already sees evidence of this trend among certain gas companies, who are reselling regasified LNG and domestic gas supply against the WIM or JKM LNG benchmarks. Besides a move towards LNG-based pricing, India could benefit from certain reforms in the domestic gas policies, such as greater transparency over LNG inventory levels, as well as gas pipeline capacity,” Foo added.
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