Is India struggling with the US LNG?January 30, 2018
By Priyank Srivastava
For raising the gas share in the overall energy basket, India has plan to increase its LNG imports from 21mt from the current level to 50mt in the next few years. India’s share of gas in the energy basket figures are far lower than global average of 24%. It aims to raise the share of gas in its energy mix to 15% by 2020 from current level of 6.5%.
As on June-end, India’s installed capacity of gas-based power plants was 25,131 MW, which accounts for 7.6% of the overall generation capacity. On this, private sector accounts for 10,556 MW capacity. On an average, these plants operated at a PLF of 22.5% in the April-June 2017 period, putting their viability in jeopardy. The average private sector gas-based power PLF in the period was even worse at 13.7%. Power Ministry has also scrapped the LNG subsidy for the power sector that means a decrease of 1-2mt in LNG imports. Looking at the present condition, India has asked Qatar to invest in stranded gas based power plants as a condition for new long-term LNG purchase deals. This move would benefit both the public and private gas-based power plants such as GSECL, NTPC, GIPCL, GMR, Torrent, Lanco, CLP, Essar Power, among others. India is also willing to give Qatar an opportunity to acquire equity stakes in LNG terminal projects under construction in India.
Source: Petroleum Planning & Analysis Cell
*2018 data is forecasted based on 7 month data (Apr-Oct 2017). Import for Apr-Oct 2017 was 11.15mt. Note: Reliance LNG import data is included from 2012-13 onwards. Reliance usually import around 1-1.5mt of LNG per year. In 2015, India’s Petronet and Qatar’s RasGas got into an agreement to revise the LNG price to reflect the slump in global oil & gas prices. India’s GAIL is also in talks with ExxonMobil-Gorgon, to cut the price by 10% for import of 1.44mt per annum of LNG for 20 years, however, Gorgon has not accepted the demand so far. In a recent move, GAIL has approached the US LNG exporters to renegotiate the price of LNG, followingthe similar deal with Qatar to match the current market realities. GAIL has long-term contract to buy 5.8mt of US LNG per annum for 20 years. It has a deal to take 3.5mtpa of LNG from Cheniere’s Sabine Pass and 2.3mtpa from Dominion's Cove Point facility. GAIL wants the fixed portion to be lowered so that the landed cost of LNG would be approximately US$7-8/MMBtu as against the present US$9/MMBtu. LNG from re-negotiated long term and spot is available for less than US$6/MMBtu. Cheniere, currently the only US company exporting LNG, signaled that it was not open to re-negotiate as it expects the contract condition to be adhered. GAIL is also renegotiating price and time of LNG supply of 2.5mpta with Gazprom of Russia.
Ways to find a cheap stocks
While LNG is already low-priced, some Indian buyers are securing spot cargoes at US$5-6/MMBtu and Indian Government hopes to lock a price even lower than that in any new long-term deal with suppliers. In spot purchases, market sentiment are giving mixed reaction. Some Indian buyers are discouraging transaction at the current spot levels due to lower price expectations, like GSPC and IOC were heard not to have awarded its cargoes inquiry for September and October deliveries. On the other hand, Torrent Power India has awarded 26 out of 36 cargoes, requesting for three cargoes to be delivered each quarter from January 2018 till December 2020. Shell was heard to have won most of the slots, with Vitol, BP, Glencore and Gazprom also heard as winners, on oil-slope level at wide range of 9.85% to 13%.
Source: EIA, Platts, Argus Media, Reuter, Economic Times and Protiviti Analysis
GAIL said it expected to import 55 LNG cargoes during 2016-17. In March this year, GAIL has signed a time-swap deal with Swiss trader Gunvor to sell some of its US LNG as its tries to ease the burden of its costly foreign LNG supplies after a sharp fall in Asian spot prices made US gas unattractive to India. Against a supply of 5.8mt of LNG from the US, GAIL has been able to create a market for just under 4mt in India, hence wants to sell of the remaining overseas.
Under the deal, GAIL will receive 15 cargoes from Gunvor this year on oil-linked prices on a delivered basis in India. In return, GAIL will sell 10 cargoes in 2018 from Sabine Pass at a premium to its pricing formula on a FOB basis. GAIL has also sold about 0.5mt of LNG from its US portfolio to Shell. Further, GAIL is in discussion with more players to sell LNG from its US deals.
According to sources, private petro-giant Reliance Industries is more price sensitive than any other Indian buyer and buys only the low-cost LNG. Since the company has not got into any term contract, it buys all its requirement on spot basis (usually one cargo per month) at Hazira LNG terminal for power generation and feedstock in its Petrochemical Complexes. With global LNG prices on the spot market expected to stay in bearish mood for the years to come, Reliance prefers spot purchase instead of engaging itself in a long term contracts. Reliance source most of the cargoes from RasGas as they get better price. Some cargoes are also sourced from Bonny, Nigeria. As of now, Reliance has not sourced any LNG cargoes from the US. However, recent development between the US and India, Reliance has contracted to purchase 1.6mt of ethane for more than 20 years from the US. It will replace natural gas and naphtha as feedstock at its petrochemical plants. The company has begun receiving cargo of ethane from the US to the Gujarat Chemical Port Terminal Company Ltd terminal at Dahej, Gujarat. The company uses 2.5mt a year of naphtha as feedstock in petrochemical plant and ethane would reduce its use by 20%, which can be exported. Earlier, Nagothane’s cracker unit had contract with ONGC to buy ethane & propane as a feedstock for their facility, but it expired in 2015. Dahej’s cracker unit has got additional capacity recently. Ethane from the US will be used as feedstock for Reliance's crackers in Nagothane in Maharashtra and Dahej & Hazira in Gujarat. Total US exports till May end have been about 0.9mt, out of which exports to Reliance is approximately 48%.
Flooding the market with more LNG at a time of oversupply
Exports from the US and elsewhere around the world are contributing to a market sentiment characterized by overabundance. This situation is giving Indian buyers an upper hand for amendments in contract and pricing. It also resulted in fading away concerns over security of supply, giving greater confidence in the market and reducing the apparent necessity for long-term contracts.
At July-end, Sabine Pass had exported more than 160 cumulative LNG cargoes to 24 LNG importing nations, out of 40 total LNG importers. The company reported a dramatic increase in LNG exports in Q2-2017 as compared to the same quarter in 2016. Cheniere reported sending out 48 cargoes in Q2-2017, a more than four-fold increase over the 11 cargoes shipped in the same period of last year. Total 8 LNG shipments were received by India from the Sabine Pass by July-end. The second wave of US LNG-export projects is soon to become online, as Dominion Energy is set to launch commissioning cargoes from Cove Point LNG by year-end. Wood Mackenzie analysis shows that new or expanded projects will deliver an additional 25mtpa to the global market this year. However next year, US is going to add a massive 37mtpa of additional volume to the market.
In Australia, commissioning cargoes from Chevron's new Wheatstone project in early September would be adding more supply to the market. Further, Canadian Federal Government gave final approval for the construction first LNG project of 2.1mtpa capacity from the west coast of British Columbia. Supply emerging from new projects may restrain any substantial price improvements.
In the Middle East, Qatar announced unexpectedly to lift its 12-year moratorium on further development of North gas field and will seek to bring an extra 2bcf/d into production by the end of 2023. It is a signal to its rivals including Australia and the US that Qatar intends to increase its market share, which has been falling amid a worldwide supply glut. Recent events in Qatar triggered by sanctions imposed by its Gulf neighbors may impede the security of supply but to a smaller extent.
However, particularly in case of India, close proximity and good relationship with India provide edge to Qatar over other exporters around the globe. Nevertheless, traders would supply the additional spot requirement from the US into India as need arises.
Flurry of new liquefaction projects is disrupting the traditional way of gas business and pricing models. This will continue to have profound impacts on gas markets over the next coming years. Buyers are more than happy as they are winner in this aggressive price war for market share.