Indian and Chinese buyers open to Russia spot LNG procurement, with price discounts

Many LNG importers from India and China are still willing to buy Russian spot LNG cargoes despite potential financing issues due to sanctions against the country for its invasion of Ukraine, with some expressing wariness and others saying they would buy only if they were offered a significant price discount.

This attitude comes amid a significant slowdown in spot demand from both countries due to persistently high prices driven by global supply tightness and strong competition from the Atlantic basin.

"We are waiting for the government to notify of any restrictions, but so far there's none," a source from a state-owned oil and gas company in China said.

"Dealing with Russian companies will be tough. We can still trade with them, but will have to check with the banks first," a Beijing-based trading source said.

Some buyers in North Asia -- from Japan, South Korea and Taiwan -- have included clauses in spot contracts subjecting Russian source nomination to buyers' consent. A European trader noted that that Chinese entities could initiate cargo swaps with these buyers for Russia-origin volumes.

However, some companies are reluctant to transact Russia-origin spot cargoes.

"We are trying to avoid Russian LNG just in case they are sanctioned in the near future," a Shenzhen-based end-user said.

"Currently there should be zero spot demand from China. But if we were to buy, we'd consider adding a clause stating Russian-origin cargoes are subject to buyer's consent," another Beijing-based source said.

Indian companies have bought four spot cargoes for delivery between late March to early June through spot tenders since the start of the invasion of Ukraine on Feb. 24, with cargoes awarded at $33-$35/MMBtu, and no inclusion of any Russia origin-related clauses, trade sources said.

It is not clear if Russian volumes were nominated into these trades, but one Indian LNG importer said that "We don't see any issue taking Russian cargo if we have any demand."

Recent Indian spot LNG tenders

Sakhalin Energy, based in Russia's far east, has issued two sell tenders since the start of the war, for April 22 and April 25 load, and both tenders were heard awarded to a Chinese state-owned company and transacted at a discount of a few dollars to the prevailing market level, according to multiple trading sources. However, the size of the discounts in these tenders, and other potential spot transactions involving Russian-origin LNG cargoes, was not immediately clear.

Chinese and Indian buyers stay out of spot market

Buyers are being discouraged from picking up spot cargoes because of high prices and relatively low demand.

Platts JKM, the North Asia spot LNG benchmark, averaged $37.445/MMBtu for April delivery -- the highest monthly average on record -- while the West India Marker (WIM) averaged $37.126/MMBtu, also the highest on record, according to S&P Global Commodity Insights data.

"Currently we have no restrictions against taking in Russian LNG, problem is we have no capacity to receive, we are also oversupplied," a major Chinese importer said.

Average ex-terminal trucked LNG prices have been rangebound at Yuan 8,000-8,500/mt (approximately $21-$22/MMBtu) through March and an outbreak of COVID-19 cases since mid-March in cities like Jilin and Shanghai has curbed gas demand in those regions.

In addition, Indian LNG importers have largely stayed away from spot purchases since the third quarter of 2021 as end-users have been switching to alternative fuels or reducing capacities due to the high LNG prices.

"India's gas demand is set to go down unless prices go down. Based on forward curve, December 2022 prices are still not affordable for India's industrial sector compared to liquids like LPG," an Indian importer said.

As a result, spot demand in India has almost halved from six cargoes per month to about three cargoes per month now, according to a Singapore-based trader.

Term cargo deliveries continue

Meanwhile term LNG and pipeline supplies from Russia remain unaffected.

Indian oil ministry officials signaled March 29 that there were no supply disruptions of Russian LNG under existing contracts between GAIL and Gazprom, or any change in modes of payment because of Western sanctions against Moscow.

GAIL has a 2.5 million mt/year LNG supply contract with Gazprom for over 20 years that started in 2018.

In China, term LNG cargoes from Yamal to PetroChina continue to be delivered while pipeline gas flows through the Power of Siberia pipeline have not been disrupted, according to sources with knowledge of the matter.