India lockdown: LNG vessels build up outside ports due to force majeure rejections, tank-top concerns

Suppliers rejecting force majeure notices from Indian buyers and tank-top concerns in the Dahej and Hazira terminals have caused LNG vessels to build up along the west coast of India.

The discharge rate at Indian terminals has been lower since a 21-day lockdown was imposed in the country on March 24 to contain the spread of the coronavirus. For the two weeks during the lockdown India has discharged 12 LNG cargoes, compared with 16 clips for the two weeks prior, S&P Global Platts trade flow software cFlow showed.

"Suppliers are not ready to accept FM and we cannot take cargoes due to lower demand and the tank-top situation so there is no other alternative but for vessels to line up outside the ports," an Indian LNG importer said.

However, another Indian LNG importer added that they had mutually agreed with their suppliers to defer most of the cargoes which were expected to arrive into India over end-March and April.

LNG vessel build-up

Three LNG vessels -- LNG Abuja 2, Mubaraz and Malanje -- were identified as idling along the western coast of India, according to cFlow.

Malanje sailed from Angola's Soyo LNG terminal on March 13 and has been off the western coast of India since March 29. Mubaraz sailed from Das Island, UAE, on March 26 and has been idling off the Gujarat coast since March 30. LNG Abuja 2 left Nigeria's Bonny LNG terminal on March 15 and has been anchored off the Indian west coast since April 5, cFlow data showed.

Another vessel, Rioja Knutsen, has been slow steaming and heading to the Dahej LNG terminal. The vessel sailed from the US' Sabine Pass LNG terminal on March 2 and is expected to enter Dahej April 8, cFlow showed. The voyage is expected to take 37 days rather than around 25 days as usual.

Demand decline

Indian LNG and domestic gas demand is expected to fall due to the lockdown, with only essential industries like refineries, power and fertilizers expected to be operational.

"Since the lockdown demand has collapsed for us to about 40%, with reduced demand from CNG, power and industrial sectors," another Indian LNG importer said.

After the emergence of force majeure declarations by Indian buyers such as GSPC, GAIL and Petronet LNG due to the lockdown, the DES West India assessment dropped by 35% to all-time low of $2.00/MMBtu by April 1, S&P Global Platts data showed.

"The impact on consumption [is] expected to be focused in city gas (CNG and PNG), industrial and power demand with total demand losses in Q2 ranging from 13-23 Mcm/d," Platts LNG Analyst Chinmayee Atre said.

Opportunistic buying

With spot LNG prices in India languishing at record lows, Reliance issued a tender Monday to procure a cargo for June 10-15 delivery to either Dahej or Mundra LNG terminal. The tender closed Tuesday.

Due to the ongoing lockdown and operational constraints at Indian ports, some traders said there could be an additional risk premium associated with cargoes discharging in India due to potential operational delays.

Delaying term cargoes, which are generally linked to Brent prices for three months preceding the delivery month, would also be beneficial for buyers since oil prices dropped significantly in March.

Platts Dated Brent prices averaged $31.829/b in March compared to $55.441/b in February.

If an LNG buyer delays a cargo from March to May delivery, assuming oil prices in April average around $35/b and an oil slope of 13.5%, the buyer would pay $5.50/MMBtu instead of $8.37/MMBtu, the difference of which would be more than the price of a spot LNG cargo.