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India's LNG tender activity jumps on price weakness, fertilizer demand

Highlights

GAIL may have partially awarded a tender

Some participants test market for price discovery

Reliance on other energy sources increases

Some Indian companies are showing renewed interest in the LNG spot market and issuing tenders as Asian spot LNG prices ebb from recent highs and downstream demand emerges, market and industry sources told S&P Global Commodity Insights.

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Only a handful of those tenders, however, have likely been awarded as demand is mostly lackluster because LNG prices are still elevated.

Higher fertilizer demand in India has resulted in increased LNG requirement for the next quarter, an LNG importer in India said. "Importers are participating in that [fertilizer-related] tender, but that's not a firm requirement so the volumes are not certain," the importer said. LNG is a feedstock for fertilizer production.

There is some buying interest below $40/MMBtu, but activity remains tepid as other sources of energy are also being tapped, according to the importer.

Indian Oil Corp. issued an LNG tender seeking an Oct. 7-8 DES Dahej cargo, while GAIL issued a tender seeking four Oct. 1-Nov. 14 DES cargoes. The tenders closed Sept. 15.

Market sources widely cited cargo offers at least in the mid-$40/MMBtu. IOC did not award the tender after prices received from sellers were around $50/MMBtu. IOC is well supplied with long-term volumes mostly from Qatar, the US, and Australia, and does not need to award the tender urgently, industry sources said.

Related blog: Gas policy shifts divert focus from LNG sea changes

While LNG prices have eased, a wide gap exists between buyers and sellers, leading to few deals. Platts JKM fell nearly $10/MMBtu week on week Sept. 20 and is down over $20/MMBtu from recent highs. Platts, part of S&P Global, assessed JKM for November at $38.659/MMBtu Sept. 20.

Several sources from GAIL declined to comment on whether the company awarded the tender. Industry sources said the tender may have been partially awarded.

Platts Sept. 15 assessed WIM October price for cargoes delivered into India and the Middle East at $42.075/MMBtu, nearly $4.60/MMBtu below JKM -- the benchmark for North Asia delivered LNG cargoes.

GAIL's other buy tender for 57 TBtu fertilizer received offers in the $45-$55/MMBtu range for delivery over October-December, market sources said. The tender closed Sept. 7.

Another Indian entity, Gujarat State Petroleum Corp., didn't award its buy tenders for Oct. 1-31 and Nov. 24-30 delivery, S&P Global reported earlier. The tender closed Sept. 14.

GSPC, GAIL, and IOC were not immediately available for comment.

Demand remains weak

Quite a few buy tenders in India are unawarded in 2022 due to lackluster demand in the wake of high LNG prices.

A Singapore-based trader said some participants were testing the market for price discovery rather than actively participating.

Gas-fired power generation in India has been curtailed due to high LNG prices, while other sectors, such as refineries and petrochemicals, switched to alternative energy sources.

"There is more downside risk to LNG imports in India after an approximate reduction of three cargoes a month of term volumes amid a tight global market," Ayush Agarwal, an LNG analyst at S&P Global, said. "However, GAIL is likely actively trying to replace its canceled term cargoes at price levels that are hard to expect from an Indian buyer considering the price sensitivity in the downstream market."

Agarwal said they expect 2022 LNG imports to decline 13% from 2021 and average below 30 Bcm/year. Other cheaper fuels, such as fuel oil, LPG, and coal, have already replaced LNG/gas consumption in sectors including power and refining where switching between fuels is relatively easy, dampening LNG imports, Agarwal said.