Indian refiners boost LNG usage in refineries over naphtha

Indian refiners have increased consumption of regassified LNG and natural gas amid competitive LNG prices compared with naphtha, end-users told Platts, part of S&P Global Energy.

End users said that the consumption of natural gas by Indian Oil Corp. Ltd. has increased to above 6 million standard cubic meters/day, up from 2 mmscm/d in early April.

Similarly, the consumption levels for Bharat Petroleum Corp. Limited and HPCL Mittal Energy Ltd had also increased sharply from earlier levels to above 2 mmscm/d, end users said.

The companies did not respond to a request for official comment.

"Naphtha is currently $2-$3/million British thermal units more expensive than LNG," a source from an Indian refinery said.

Data tracked by Platts showed a rising trend in naphtha sell tenders issued by Indian companies, with seven spot tenders in April, compared with just one at the end of March.

India scaled back naphtha exports in March, redirecting supply to the domestic market amid the Middle Eastern conflict. According to data from the Petroleum Planning and Analysis Cell, India's naphtha exports fell 33.61% month over month and 4.14% year over year to 353,654 metric tons in March.

In April, state-owned refiners began offering naphtha cargoes in the spot market to capitalize on firm premiums amid a lack of Middle Eastern supply. Refiners attributed higher export volumes to weaker domestic demand, as LNG displaced naphtha in fuel consumption.

This coincided with a rise in LNG buy-tender bids by Indian companies as well.

Indian companies typically sell naphtha at a premium to the Mean of Platts Average for Arab Gulf Naphtha and Argus Arab Gulf Naphtha. The premiums over recent tenders have been around $90- $140/mt above this average. On an outright basis, Platts assessed the Naphtha FOB Arab Gulf Cargo price at $931.60/mt on May 12.

Naphtha was sold at an equivalent price of over $22/MMBtu on FOB basis, sharply higher than the delivered LNG price.

Platts assessed West India Marker, the price of LNG cargoes delivered to India, for June at $17.575/MMBtu on May 12, reflecting around $4.4/MMBtu discount to naphtha.

"The difference, broadly speaking, if it is more than $2-$3/MMBtu between Naphtha and LNG, allows switching to LNG it can account for the taxation differences and other costs such as regas, transportation, et cetra," an Indian LNG importer said.

LNG consumption in refineries

Market participants expect that if prevailing consumption levels are maintained, LNG consumption by refineries would be equivalent to an additional two LNG cargoes per month.

The average RLNG consumption in refineries between September and February was 411 mmscm/month. Consumption fell sharply in March to 211 mmscm after the war in the Middle East broke out, according to PPAC data.

Reallocation of domestic gas and prioritization of LPG production by refineries have enabled greater use of LNG at refineries, an Indian importer said.

"The consumption has definitely increased I think it would impact approximately around 2 cargoes additionally," an Indian importer said.

"The refineries are pulling gas by quite a bit. It is very healthy," another importer said.

"Ideally speaking, because of ethanol blending, the naphtha blending should have increased to meet the RON standards and so they are using natural gas for hydrogen production," a refiner in India said.