Spot LNG price crash set to make life harder for Indian suppliers of long-term gas


New Delhi: Spot costs of liquefied natural gas (LNG) have fallen sharply to $1.three per unit, which has severe implications for India as a result of will probably be tough to promote the fuel to factories as provides below long-term contracts have a a lot greater price of $5-7.

Industry fears a flood of disputes and litigation as factories are already fighting very weak demand due to the lockdown.

LNG charges have been below stress for greater than a 12 months as a consequence of a provide glut however the extraordinary demand destruction by the coronavirus pandemic and the problem in storing the super-cooled liquid has hammered international fuel costs like by no means earlier than.

International fuel costs, a variable within the home value, have additionally been falling. Domestic costs fell 26% within the final six-monthly revision on April 1 to $2.39 primarily based on the government-set method. This triggered calls for by native producers to elevate all value controls. The method value is derived from common charges at worldwide fuel hubs. Maximum value producers can cost for fuel from fields situated in tough terrains has additionally dropped a 3rd to $5.61 per mmBtu.

The common of spot-LNG costs in April this 12 months was $2.four per million metric British thermal Units, in contrast with $5.2 in final April and $6.four in December, in keeping with Japan’s commerce ministry knowledge. LNG charges within the Asian area carefully comply with that of Japan.

With LNG charges below long-term contracts being a number of instances the spot costs, business executives say it might be tough to promote fuel to Indian factories, which wish to minimize power prices because the financial system reopens amid common demand uncertainties.

“Ever since global spot rates crashed, it’s been hard to sell long-term gas to customers. Following the lockdown, it may be harder to convince them to continue taking this gas,” mentioned an govt at a state agency.

Gas entrepreneurs like GAIL, Indian Oil, GSPC and Bharat Petroleum procure LNG by way of a number of long-term contracts with suppliers in Qatar, Russia, Australia and the US. They make this provide accessible to metropolis fuel distributors or industrial clients below a contract that requires clients to pay even when they will’t take fuel through the contract interval.

“The disparity between long-term and spot is very stark,” mentioned Ok Ravichandran, group head-corporate sector scores at scores company ICRA. “Amid lockdown, consumers have declared force majeure but suppliers are not agreeing. Until the eventual suppliers like Qatar agree to it, the entire value chain will be caught in litigation.”

Bigger customers like fertilizer and energy crops have a value pass-through facility however different industries don’t. “Smaller players would want to get out of such expensive contracts. But that could result in suppliers encashing their bank guarantees, resulting in legal disputes,” mentioned Ravichandran. The present state of affairs would damage margins of fuel entrepreneurs. Pipeline utilization is falling and that may diminish returns for operators.

Gas costs below long-term contracts with suppliers in Qatar, Russia or Australia are linked to shifting common of crude oil costs for the previous three or extra months. GAIL’s US LNG contracts are linked to fuel hub charges however excessive liquefaction and transport prices make it uncompetitive.





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