Page 9 - GLNG Week 23

GLNG COMMENTARY GLNG

India seeks to capitalise

on depressed LNG prices

State-run Petronet LNG not only wants better prices for term

supplies but is also pushing for indexation to spot prices

POLICY INDIA is reviewing its approach to long-term to climb from 22-23mn tonnes per year at
liquefied natural gas (LNG) supply contracts present to 50mn tpy by 2030. He added that if
WHAT: following a pricing downturn over the past year final investment decisions (FID) were reached
Petronet LNG has and half owing to both oversupply and shrinking on 200-250mn tonnes of LNG export capacity
suggested that prices in demand. within the next five or seven years, then there
long-term contracts could Before the onslaught of the coronavirus would be even more fuel floating around on the
be fixed at a discount to (COVID-19) pandemic on fossil fuel demand, spot market.
West India Marker. LNG prices were already being pinched by “I am saying we are willing to commit large
unseasonably warm winter temperatures and volumes for 5-10 years. But let’s agree to those
WHY: the steady commissioning of new export pro- volumes based on spot price markers. This
The West India Marker jects. After prices fell to a record low in 2019, the means that since I am giving you the volume
fell to a historic low next few years look far from certain. commitment, let’s agree to those volumes on a
of $1.925 per mmBtu The International Energy Agency (IEA) formula – as an example, say at $0.05 per mmBtu
($53.25 per 1,000 cubic warned this week that global natural gas demand [$1.38 per 1,000 cubic metres] discount to [the
metres) last week. was expected to shrink by 4% year on year in West India Marker],” Singh said.
2020. The drop, the largest ever recorded, would The West India Marker fell to $3.725 per
WHAT NEXT: equate to 150bn cubic metres of demand being mmBtu ($103.73 per 1,000 cubic metres) in
Contract renegotiations wiped out. January, with Platts noting at the time that it
appear to be a likely next “Natural gas has so far experienced a less was the lowest level since it had started assessing
step for Indian buyers on severe impact than oil and coal, but it is far from the marker in January 2010. This was before the
the hunt for a bargain. immune from the current crisis. The record effects of the pandemic had even set in, and since
decline this year represents a dramatic change of then the marker had fallen to $1.925 per mmBtu
circumstances for an industry that had become ($53.25 per 1,000 cubic metres) at the start of this
used to strong increases in demand,” IEA execu- month.
tive director Fatih Birol said. Singh argues his suggestion is a win-win solu-
Birol added: “Global gas demand is expected tion, ensuring that India receives prices always
to gradually recover in the next two years, but below the spot price, while “suppliers in turn will The plunge
this does not mean it will quickly go back to have a guaranteed market over the longer term”.
business as usual. The COVID-19 crisis will He said more than a dozen of the 147 LNG sup- in prices has
have a lasting impact on future market develop- pliers the company talks to had made “extremely already seen the
ments, dampening growth rates and increasing good offers.
uncertainties.” We are now working around that and perhaps company rethink
For India, which is already seeing its gas in the next two to three months you may hear
demand nearing pre-lockdown levels, a something from us to that effect,” the executive one major new
depressed wider market offers opportunities for added.
better LNG supply deals. The plunge in prices has already seen the term contract it
company rethink one major new term contract it was negotiating.
Spot vision was negotiating with US gas developer Tellurian.
State-run Petronet outlined its plans this week to
adopt a new pricing mechanism for long-term Deal delays
supply contracts that was based on spot markers. The Houston-based company revealed on June
India’s rising demand for the fuel – driven by 5 that Petronet had let their memorandum of
the central government’s vision of a gas-based understanding (MoU), which was signed in
economy – should give the country suitable September 2019, lapse.
leverage in negotiations, Petronet CEO Prab- Under the terms of the MoU, Petronet was
hat Singh told S&P Global Platts in a recent negotiating not just the purchase of up to 5mn
interview. tpy of LNG from the proposed Driftwood export
He said India’s LNG imports were predicted terminal on the US Gulf Coast, but also a $2.5bn

Week 23 12•June•2020 www. NEWSBASE .com P9