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Gas, coal demand in focus as India issues heat wave warning


Maximum temperatures above normal in East, Northeast India

Coal imports likely to accelerate from May

India's LNG imports to average 84 million cu m/d over April-June: S&P Global

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  • Surabhi Sahu    Anupam Chatterjee    Pritish Raj    Suyash Pande
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A harsh summer season and above normal maximum temperatures in parts of India has triggered expectations of increased fuel consumption with gas, coal, and LNG likely to receive a boost to avert power outages, market sources told S&P Global Commodity Insights.

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The Indian Meteorological Department, or IMD, in a statement April 17 warned of heat wave conditions over East India were likely to continue for the next few days.

"Yesterday's [April 16], maximum temperatures were in the range of 40-42°Celsius over some/many parts of plains of Northwest India, Central and East India and 35-40°Celsius over many parts of rest of the country except over Western Himalayan Region (22-25°C) & Islands (30-34°C)," the IMD said.

Maximum temperatures were 3-5°Celsius above normal over many parts of East & Northeast India, it said, adding that "heat wave conditions are prevailing in isolated pockets over Gangetic West Bengal since last 6 days; Coastal Andhra Pradesh since last 4 days and Bihar since last 3 days".

This comes as the IMD had already predicted earlier this year that most parts of the country would likely experience above normal maximum temperatures from April to June.

The power sector is already in a precarious position as a shortage looms.

An electricity shortage of 22.53 million kWh was seen on April 17 compared to a shortage of 3.30 million kWh April 2, according to daily power supply reports of the National Load Despatch Centre.

The highest electricity shortage, of 3.91 million kWh, on April 17 was recorded in the eastern state of Jharkhand, followed by the northern states of Haryana (3.08 million kWh) and Uttar Pradesh (3.05 million kWh), the data showed.

Reflecting soaring demand, power prices in India's spot electricity market increased from Rupee 3.50/kWh ($0.04/kWh) April 2 to Rupee 7.04/kWh April 17.

Gas dependence, LNG imports

Out of India's total power generation capacity of more than 400 GW, slightly over 6% or 25 GW is gas-fired, while more than 52% is coal-fired, and the remaining is from renewables, hydro, nuclear and other sources, official data showed. The call to shore up fuel reserves and supply is expected to have the largest impact on coal, and on gas to some extent.

An India-based end-user said that there is sufficient gas to meet power requirements even though its usage has gone up during the summer.

Sources said that some gas-based power plants may offer their gas-based power at the power exchange as well amid firm demand.

Softening LNG prices are also likely to come as a reprieve for India's price-sensitive downstream buyers during the scorching summer months, some sources said.

Platts, part of S&P Global, assessed JKM for May at $11.903/MMBtu on April 10, the lowest price since June 18, 2021, when it was assessed at $11.688/MMBtu. Platts assessed JKM for June at $12.378/MMBtu on April 18. The Platts LNG West India Marker was assessed at $11.975/MMBtu that day.

LNG spot buying activity has stayed firm with IOC launching a buy tender for 2 DES that closed April 5 and was heard to have been partially awarded the tender at $13-$13.5/MMBtu for May-June delivery. Among other recent tenders, GAIL launched a buy tender for six cargoes for delivery at Dahej although it was heard to be a buy leg of a swap tender. Meanwhile, BPCL and GSPC were also heard to have issued a buy tender for one DES cargo each with the latter heard to have heard awarded the tender, which closed March 21, in the low $12/MMBtu level.

"We expect LNG imports in India to average 84 million cu m/d between April to June on the back of increased power and industrial demand amid softening of spot LNG prices," Ayush Agarwal, an LNG analyst at S&P Global said April 18.

Although this is 4 million cu m/d lower compared to April-June 2022, imports will stay supported amid dependence on other fuels to quench India's summer thirst, he said.

Power plants guzzling up coal

According to the coal ministry data, India's coal production increased 14.76% year on year to 893.08 million mt in the financial year 2022-23 ended March 31.

India imported 14.9 million mt thermal coal in March, according to S&P Global seaborne data,

"It was projected early that the power demand this year will rise to record levels and a natural immediate reaction to it is going to be more coal consumption. Production so far has been robust, and imports are also likely to pick up from May onwards," an India-based trader said April 18.

Coal stockpiles at Indian power plants have resiliently stuck to around 37 million mt in the first 15 days of April, sufficient for more than 13 days of burn, according to latest data by the Central Electricity Authority of India.

The government is preparing to avert a potential power crisis and has already initiated some steps such as ordering power plants using imported coal to run at full capacity to prevent widespread power outages. In addition, the coal ministry has already directed all power generation companies to blend imported coal up to 6% of their requirement till September.

A trader in Singapore noted that the situation was currently mostly under control due to "decent domestic output" amid slow market activity due to the upcoming Eid holidays in many Asian countries.

Market participants also noted that after Europe cut coal imports, global exporters--US, South Africa, Colombia-- are flocking to high consumption regions in Asia looking for buyers, and India may benefit from this situation.

"I do see more coal imports happening, also for blending purpose, in a few weeks from now," the Singapore-based trader added.