Petronet CEO sets sight on fixing term LNG imports via spot markers

Singapore — With global LNG supplies swelling, Petronet's CEO Prabhat Singh has a mammoth task in hand -- how to ensure supplies for India's burgeoning appetite at a fair price.

Singh is hoping that pricing of term volumes will witness a dynamic shift under which India will be able to seal deals based on spot markers, he told S&P Global Platts in an interview.

Singh, who has been instrumental in putting India on the world gas map, believes that the country's insatiable appetite for gas over the next decade and expectations of exponential growth in LNG imports would whet the appetite of suppliers to agree to India's stance on term prices sooner than later.

"It's a hypothesis that we have floated. I am saying we are willing to commit large volumes for five to 10 years. But let's agree to those volumes based on spot price markers. This means that since I am giving you the volume commitment, let's agree to those volumes on a formula -- as an example, say at 5 cents/MMbtu discount to DES West India," Singh said.

"In this way, my term import prices will be always less than the spot prices and suppliers in turn will have a guaranteed market over the longer term. Out of some 147 LNG suppliers, we have received extremely good offers from more than a dozen suppliers. We are now working around that and perhaps in the next two to three months you may hear something from us to that effect," he added.

However, Singh added that this may not mean the end of oil-linked LNG term contracts anytime soon.

He said that with India's LNG imports expected to reach as high as 50 million mt by 2030, from the current 22-23 million mt, this would provide one of the biggest opportunities to LNG producers who are expanding their capacities.

"In the next 5 or 7 years, you may see 200-250 million mt of LNG FIDs [final investment decisions] happening. You can visualize the amount of volumes which would be outside of contracts and looking for homes," he said.

Low prices to aid demand growth

S&P Global Platts Analytics expects India's LNG imports to grow nearly 40% above 2020 by 2025, underpinned by the build-out of new infrastructure, including regasification capacity and downstream pipeline capacity. The current low LNG price environment will only work to accelerate the emphasis on LNG.

The North Asian spot LNG benchmark, Platts JKM, plunged to historical lows this year as the market grapples with oversupplies with COVID-19 hitting demand. JKM, which is down more than 60% from the beginning of the year, was at $2.025/MMBtu June 2.

Similarly the West India Marker -- the new name for DES West India - has been languishing at record lows, falling more than 37% since the lockdown was imposed in the country and almost 60% down since the beginning of the year to $1.925/MMBtu June 2.

"Anything and everything in India is viable at these prices," Singh said.

Petronet set up the country's first and largest LNG receiving terminal at Dahej in the western state of Gujarat and another terminal at Kochi in the southern state of Kerala. While the Dahej terminal's capacity was expanded to 17.5 million mt/year from 15 million mt/year earlier this year, the 5 million mt/year Kochi terminal has been heavily underutilized since it was commissioned in 2013 because of a lack of pipeline infrastructure.

"Capacity utilization at Kochi is now 18-20%. With Mangalore now getting connected, we feel that utilization may go up to 25-30%. Until Bengaluru gets connected, it will be hard to push it up more," Singh said.

But he added that Petronet was looking at the virtual pipeline ecosystem -- LNG on trucks. With 250,000 trucks and 85,000 inter-city buses coming into the system every year, this segment would create an additional 9-10 million mt of demand annually.

Demand recovering well

Singh said that India's gas demand fell to about 110 million cu m/d during the lockdown period, from as high as 160 million cu m/d.

"But demand is recovering extremely well now and we have already come back to about 145 million cu m/d. So going back to the original position would hardly take any time," he said, adding that LNG imports would pick up over the next six months and some term cargoes arrivals -- which may have been deferred due to the force majeure during the lockdown -- would fall back into place.

On overseas ambitions, Singh said that Petronet was currently looking at opportunities in neighboring countries - such as Sri Lanka and Bangladesh -- to help set up regasification terminals.

He said that while LNG would remain the biggest focus for Petronet, the company was also keenly watching developments in the energy transition space -- such as wind, solar and hydrogen.

"We are not going to lose sight of our core business that is LNG. But at the same time if developments happen earlier than your expectations one should be prepared so that you naturally transition to that space in order to survive," Singh said.