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rise and it already leans heavily on Qatar to help meet its demand.
Following the meeting between the two countries’ energy ministers, Reuters quoted unnamed Indian officials as saying that negotia- tions had only just started.
“There is a plenty of gas supplies in the mar- ket and India is a big market, where demand for gas will continue to rise,” one unnamed Indian official was quoted as saying. “Our negotiations continued for about a year before they agreed on changing the formula in 2015.” Supply and demand Despite the Indian government’s pledges to reduce the country’s oil and gas import dependency, natural gas imports have climbed steadily in recent years.
India’s imports of LNG surged 22.8% year on year to 2.83bn cubic metres (2.14mn tonnes) in December 2019, and by 6.8% in the first nine months of financial year 2019-2020 to 23.58 bcm (17.83mn tonnes), according to Petroleum Plan- ning and Analysis Cell (PPAC) data. The coun- try’s LNG import bill, meanwhile, fell by 11.25% in the period to $7.1bn.
India’s dependency on foreign gas supplies climbed past the half-way mark last year and ris- ing import volumes appear inevitable.
Wood Mackenzie has forecast that the coun- try’s imports of LNG could climb to 40mn tpy by 2030 and to 70mn tpy in 2040, at which point it is expected to rival Japan as the world’s sec- ond-largest importer of the super-chilled fuel.
India’s energy majors are currently investing in new import capacity, with the national han- dling capacity projected to rise from 38.8mn tpy at present to 52.5mn tpy with the next four years.
Given that Qatar already delivers around about 40% of India’s overall gas imports, and the Middle Eastern LNG supplier is looking to expand capacity to 126mn tpy by 2027, it is understandable that New Delhi would be eager to win lower prices for existing supplies while also locking in favourable pricing mechanics for new contracts.
What next
Asian buyers have become more aggressive in negotiating for new long-term LNG contracts, buoyed by a ramp-up in global supply capacity and a slowdown in demand growth. For exam- ple, while China’s LNG imports climbed by 12.2% y/y in 2019, the gains were partially off- set by a 6.7% slide in Japan’s imports to 77.32mn tonnes.
Moreover, LNG prices are widely antici- pated to come under mounting pressure this year, squeezed by a warmer northern hemi- sphere winter and a wave of new export projects around the world coming online.
“The global oversupply of LNG has been building and building and building,” the founder of US gas-focused hedge fund Statar Capital, Ron Ozer, told Bloomberg last week. “The gas market can’t stomach the oversup- ply and warm weather, and it’s getting both.” Against this backdrop, New Delhi has seen an opportunity to secure much-need long-term energy supplies from Qatar at a far better price.
Qatar, however, has shown that while it can be flexible with its contract pricing it will only give so much ground. Energy consultancy FGE told Bloomberg last week that Qatar had offered Korea Gas (KOGAS) an LNG supply contract linked to 10.8% of the international oil price.
India is using current low spot prices to strengthen its hand in negotiations with Qatar, though the latter may be counting on the market shifting back in suppliers’ favour in the coming years. Rystad Energy, for one, has forecast that the market could “tighten significantly” from 2023, owing to a slide in sanctioned liquefac- tion projects.
India is unlikely to lean overly heavily on the spot market, owing to the inherent energy security risks this would expose. As such, India’s push to delink Qatari LNG contracts from oil prices appears to be an opening gambit in a longer game where New Delhi will likely be sat- isfied with more modest concessions.™
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