INTERVIEW: Petroleum products unlikely to gain from India's coal woes, says FIPI

India's domestic demand for petroleum products is unlikely to rise sharply due to the current coal shortage as high gas and oil prices will restrict the commercial viability of fuel switching, while the end of the monsoon season will help to revive supply from mines, Federation of Indian Petroleum Industry director general Ravinder Kumar Malhotra has told S&P Global Platts.

Even in the case of coal shortages at power plants, the government's direction to state-run GAIL to prioritize gas supplies for power generation would help to normalize the situation in the near future, he added.

"I see the impact on petroleum products to be minimal because of the current coal supply situation," Malhotra told Platts in an interview.

"We may see some increase in demand for gas, but I don't see the situation to be serious enough for any massive shift to gas-based power generation. Therefore, I don't see demand for petroleum products, such as oil and gas, going up massively because of the coal situation," he added.

The global rally in energy prices, including coal, has prompted Indian importers to restrict purchases at a time when domestic supply is normally affected by widespread monsoon rains.

Energy price surge pulls down imports

India's thermal coal imports in August fell 22% on the year to 8.96 million mt, data from trading firm Iman Resources showed Oct. 4, a sign of India's reluctance to import thermal coal amid high prices even as stockpiles continued to dwindle.

India's coal stocks at ports plunged 44% year on year to 8.05 million mt in August, Iman Resources data showed Sept. 30. Coal stocks at the country's power plants slumped 60% on the year to 16.93 million mt in August.

The price of Indonesian 5,000 kcal/kg GAR surged 134.59% from $66.5/mt FOB Jan. 4 to a record high $156/mt FOB Oct. 8, Platts data showed.

"The monsoon season always creates issues in terms of the transportation and mining of coal. With the monsoon season ending, I would expect the coal supply situation to get better soon," Malhotra said. India's monsoon season runs from June to September.

Traders have been saying that some coal-based power plants in India were running below capacity. Market participants expect more such scenarios to play out this quarter if Indian buyers delay procurement further.

S&P Global Platts Analytics says plant load factors at Gujarat coal-fired power plants averaged 45% in August and were estimated to have dropped to below 20% in September. It believes utilities in the western states would shut down coal-fired generation rather than pay higher import coal prices.

"Although the central government announced Oct. 9 it would allow import-reliant utilities the ability to sell additional power generation into the open electricity market at higher tariffs, we believe the Indian power market could undergo a similar situation to 2018, particularly in Gujarat, rather than paying these high import prices," said Matthew Boyle, manager of global coal and Asia power analytics at Platts.

However, a coal ministry statement on Oct. 10 said that ample coal was available in the country to meet the demand of power plants. It said that due to extended monsoons, transportation from mines was constrained.

"We have enough gas in the country to fill up any coal shortages," Malhotra said.

Gas not a viable option

However, analysts said that diverting a lot of gas to power generation would not be a feasible alternative given the current high global prices.

"I think the impact on gas would likely be pretty limited. Spot LNG is likely not going to be feasible as an alternative as it's way more expensive than coal," said Jeff Moore, manager of Asian LNG analytics at Platts.

In a market where Asian and European regions continued to compete for winter cargoes, the Platts JKM for November was assessed at $35.210/MMBtu Oct. 11.

Coal India expects the issue of low coal stocks at power plants to subside by November or December, according to company officials.

The total supply of coal from all sources -- Coal India Limited, Singareni Collieries Company, Captive Coal Mines and imported coal -- was currently estimated at 1.92 million mt, and total consumption at 1.87 million mt, an indication of a gradual build in coal stocks.

The power ministry in a statement issued Oct. 9 attributed the depletion of stocks to the revival of the economy as pandemic restrictions eased boosting power demand, heavy monsoons disrupting supplies, bullish import prices and a lack of inventory replenishment ahead of the monsoon.

"Compared to 2019, there has been 43.6% reduction in power generation from imported coal, which led to extra demand of 17.4 million mt of domestic coal during April-September," the statement said.

Coal India is confident of achieving its production target of 1 billion mt by 2023-24 to meet domestic requirements. Officials said commercial mining would complement the production capacity of Coal India in achieving the target of meeting domestic coal requirements.

"The entire situation is a fallout of high world energy prices and seasonal domestic supply constraints that have happened at the same time. We should see signs of the situation getting better very soon," Malhotra said.