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India's Petronet LNG prefers long-term LNG deals over spot exposure

Highlights

Petronet LNG buys 7.5 million mt/year from RasGas via a long-term agreement

Power, fertilizer, city gas and refineries seen as growth drivers for LNG demand

  • Author
  • Ratnajyoti Dutta
  • Editor
  • Agamoni Ghosh
  • Commodity
  • LNG Natural Gas Oil
  • Topic
  • LNG Commoditization

India's biggest LNG importer Petronet LNG is open to extending the existing long-term contract with Qatar's RasGas beyond 2028 to secure uninterrupted supplies to user industries such as power, fertilizers, and city gas distribution in Asia's third-largest economy, company officials said Aug. 18.

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They also said Petronet LNG favors a long-term contract for LNG supplies over spot deals.

Petronet LNG's existing term supply contract with RasGas, slated for a review in 2023, will expire in 2028.

"We are keen to extend the term contract by at least 10 years to 15 years after the expiry of the existing contract to ensure supplies to user industries," said V.K. Mishra, director finance, Petronet LNG.

Mishra said sourcing LNG cargoes via long-term deals are always a preferable route than sourcing via spot deals where LNG prices are subjected to wide swings.

Petronet LNG buys 7.5 million mt/year from RasGas via a long-term agreement and also imports 1.44 million mt/y from Exxon's Gorgon project in Australia under another term deal.

Mishra termed the prevailing spot prices of around $17/MMBtu to be "very high" and "not sustainable" on a long-term basis as long-term oil-linked prices were almost half in comparison. "Long-term prices are the need of the hour and required for the industries we are supplying," he said.

Qatar would continue to be a preferred destination to source LNG supplies under a term deal, Mishra said. Petronet LNG buys around 10 to 12 cargoes from Qatar under the existing term deal, depending on the domestic demand scenario. It buys an equal number of cargoes via spot deals in case prices are competitive.

"A price of around $10/MMBtu appears to be sustainable as domestic power companies shy away when this price level is breached," said an official with the oil and gas ministry said separately.

India has an ambitious consumption target for natural gas in sync with Prime Minister Narendra Modi's target of raising the share of gas in the overall energy mix from the current level of 6.3% to 15% in 2030.

"Long-term pricing is a prudent policy to ensure supplies to our big consumers like power and fertilizer plants," Mishra said.

Officials said Indian companies have also rescheduled or deferred LNG cargoes to avoid the current prevailing high spot prices.

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Focus on natural gas

Sectors such as power, fertilizer, city gas distribution network and refineries, oil and petrochemicals alike have been identified as the growth drivers for LNG demand in the world's third-largest energy consumer.

"Fertilizer sector and CGD network are the promising sectors for LNG demand in the future while the demand scenario for the power sector is more or less stable," said the ministry official.

Mishra said the conversion of trucks and buses into CNG-run vehicles promises a huge growth potential for the consumption of natural gas.

Petronet aims to set up 1,000 LNG dispensing stations in 4-5 years, replicating the Chinese model of a vast truck fleet migrating to the clean fuel from polluting diesel.

India's natural gas demand will grow after the Kochi-Mangalore gas pipeline and state-run gas utility GAIL's Jagadishpur-Haldia pipeline network becomes fully operational in the next couple of years.

Petronet's flagship terminal at Dahej will run at an enhanced capacity of 20 mln mt/year in 2023 from its current capacity of 17.5 million mt/year.

Dahej terminal will add six loading bases from the current level of 4 loading bases in 2022, as part of the plan to raise the capacity of the flagship terminal in the next three years.