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Weakening LNG prices spur renewed spot demand in South Asia


India buyers looking for spot deals at $10-$15/MMBtu

Bangladesh issues tender for spot delivery March 11

Long-term contracts still vital for mitigating supply risks

  • Author
  • Michelle Kim    Surabhi Sahu    Eric Yep    Ratnajyoti Dutta
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  • Manish Parashar
  • Commodity
  • Coal Electric Power LNG Natural Gas Oil
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  • United States

Falling spot LNG prices are set to rekindle demand for the fuel in South Asia in coming months, with some countries already returning to the market via tenders while trading activity during the Platts Market on Close assessment process from S&P Global Commodity Insights has also ramped up.

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LNG buyers, particularly from price-sensitive markets such as India and Bangladesh, had remained on the sidelines through most of 2022 amid high prices and volatile markets following the Russia-Ukraine war.

The Platts JKM LNG price benchmark averaged about $33.9789/MMBtu for calendar-year 2022, compared with $18.59543/MMBtu in 2021, according to data from S&P Global.

Platts assessed the JKM for March at $15.212/MMBtu Feb. 15, dropping about 19.14% from Feb. 2, S&P Global data showed.

Related content: Changing places: Shifting participation and growing intervention in LNG markets

Prices have eased on weakening demand in northeast Asia amid expectations of mild weather and ample inventories, as well as an imminent restart of Freeport LNG in the US.

While elevated LNG prices dented consumption to some extent, demand has stayed strong as these countries try to satiate their rising energy needs, industry sources told S&P Global.

"My take on this is that while it is true that there is strong demand for gas in South Asia, and buyers from these markets have indeed returned to the spot market, the expectation of the demand level for spot LNG has to be balanced with the realization that at around $15/MMBtu prices are relatively high compared to both historical prices and the domestic gas prices end consumers are paying in these markets," said Johan Utama, principal analyst on the Southeast Asia Gas and LNG team at S&P Global.

"Still, there are some buyers that are better positioned to be able to pass on the cost and/or mix LNG with lower-cost domestic gas," he added.

Renewed interest in spot buys

India's LNG imports fell 9.12% to 29.29 Bcm in 2022, showed data from the Petroleum Planning and Analysis Cell.

Spot activity has been mostly muted on high prices since the war, but the potential of a gas-based economy remains high in India if LNG prices are in the $10-$15/MMBtu range, an industry source said.

Another source said buyers in India were looking for spot prices around $12-$13/MMBtu.

"People are watching the falling market ... we may see some activity in the coming weeks," a third source said.

Renewed trading interest was also reflected during the MOC where Vitol participated in a bid Feb. 14. During the physical MOC, Vitol placed a DES India bid for March 24-25 delivery at JKM April minus $1.20/MMBtu, which equated to a fixed price of $14.05/MMBtu.

India's GSPC had previously awarded a buy tender for delivery in second-half March at $14.35-$14.40/MMBtu to a Middle Eastern supplier. The tender closed Feb. 13.

Although spot markets are seeing some activity, downside risks persist amid impending resumption of domestic gas supplies, market sources said.

Reliance-BP's tender offering domestic natural gas that was due Jan. 18 has been delayed due to some clarification required from the government on priority allocation to city-gas distribution and fertilizer plants, S&P Global reported earlier.

Reliance-BP is offering around 6 million cu m/d domestic gas from a deepsea project in the country's KG D6 basin starting from February for five years.

LNG imports by Bangladesh are set to recover in 2023 with volumes of 6.2 Bcm compared to 5.8 Bcm in 2022, according to an S&P Global forecast. In February, Bangladesh awarded a February spot LNG tender to TotalEnergies at $19.78/MMBtu, S&P Global reported earlier.

TotalEnergies was awarded the LNG tender for delivery Feb. 21-22 at the Matarbari floating storage and regasification unit, with the French company to supply around 3.36 million MMBtu LNG for regasification at Bangladesh's FSRU as part of the deal.

Bangladesh last imported a spot LNG cargo for delivery in June 2022 at $24.75/MMBtu from Gunvor Singapore Pte. Ltd.

PetroBangla has issued another tender for a spot LNG cargo for delivery March 11 on a DES basis, at least three traders said. The tender closed Feb. 12 and Bangladesh could buy as many as 10-12 cargoes by June, so the market should be seeing quite a few more tenders in coming weeks, they added.

Additional buy tenders might emerge from South Asia too if spot LNG prices fall below $10s/MMBtu, sources said.

Long-term contracts

As buyers scout for spot cargoes, the lure of long-term contracts remains amid concerns over energy security and the need to ensure affordable supplies.

Bangladesh has been in talks to sign new sales and purchase agreements. In 2022, PetroBangla Chairman Nazmul Ahsan said the company had already initiated negotiations with Excelerate Energy, ENOC and Summit Group to boost LNG supplies and reduce the impact of energy shortages.

Spot LNG remains costlier than contracted LNG for the country, with Bangladesh's Brent crude-linked LNG from Qatargas and OQ currently hovering around $11/MMBtu.

India's Petronet LNG was still negotiating with QatarEnergy to extend a long-term LNG contract beyond 2028, a company official said Jan. 20, adding that Petronet was negotiating for a competitive price for a higher volume. The existing long-term contract with Qatar is for 8.5 million mt/year.

Petronet LNG, which buys about a fifth of its volume from the spot market, has around 20 million mt/year long-term LNG import contracts with suppliers such as Qatar and Australia.

India's state-run gas utility GAIL was also in discussions with various suppliers, including Abu Dhabi National Oil Co., to meet a supply shortfall of around 2.5 million mt that came about after Gazprom Marketing and Trading Singapore cut supplies from May 2022, a company official said in January.