Page 4 - AsiaElec Week 24

AsiaElec COMMENTARY AsiaElec

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

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

P4 www. NEWSBASE .com Week 24 17•June•2020