South Asian importers purchase LNG cargoes at premium to meet prompt requirements

South Asian LNG importers are consistently purchasing cargoes for prompt delivery at steep premiums to regional benchmarks and European gas hubs to meet short-term requirements, traders and importers said.

In the week to Aug. 21, Indian companies bought five cargoes while Bangladesh bought four to meet requirements for early September, importers said.

GAIL purchased a cargo Aug. 18 at mid-$21s/million British thermal units for Sept. 1-10 delivery via a tender. GAIL bought another cargo for Sept. 1-20 at low-to-mid-$23s/MMBtu and then it followed up by buying a Sept. 20-30 delivery cargo at mid-to-high-$22s/MMBtu, four traders familiar with the tender said.

Bharat Petroleum Corp. Ltd. bought a cargo Aug. 20 for second-half August delivery at about mid-$23/MMBtu, according to four traders familiar with the tender.

Gujarat State Petroleum Corp. bought one cargo Aug. 21 for Sept. 5-18 delivery at mid-$23s/MMBtu, according to traders familiar with the tender.

GAIL did not award a tender Aug. 21 for Sept. 1-30 delivery and Indian Oil Corp. Ltd. also failed to award a tender, four traders familiar with the tenders said.

GAIL, BPCL, GSPC and IOCL did not respond to requests for comments Aug. 24.

Demand from India

Indian demand was prompt, mirroring downstream requirements, with aggregators averse to purchasing LNG volumes before the downstream regasified LNG tenders were clearly issued, importers said.

Indian companies have been purchasing nearly 9.5-10.5 TBtu fertilizer tenders every two weeks. These tenders typically take place within 10 days before the RLNG supply is scheduled to begin, creating extremely prompt demand for cargoes. The demand translates to nearly six cargoes per month, India-based importers said.

The issue has been aggravated by the shortfall faced by Indian city gas distribution companies. Four sources familiar with the matter said demand from CGD companies has been about 5 million standard cubic meters/day after cuts in long-term RLNG contracts, which translates to nearly two cargoes per month.

Further, any shortage of LPG can increase demand from industries, with an upside potential of another three cargoes each month, marketers familiar with the market said. The LNG demand to replace LPG was strong until July, with consumption nearly 8-9 MMscm/day. However, with the availability of LPG, the demand for LNG has gone down to nearly 2-3 MMscm/d, they said.

While demand from refineries has come down, it is still a little more than one cargo per month.

LNG demand from India has also been supported by a fall in domestic production that is boosting demand by two-three cargoes per month and a natural growth in the CGD industry year over year, traders added.

Pricing for prompt periods

The closed arbitrage for US cargoes to South Asia and the Asian trading hub of Japan-Korea-Taiwan-China meant limited available cargoes for meeting prompt requirements in India and Bangladesh.

The spread between Platts JKM, the benchmark price reflecting LNG delivered to Northeast Asia, and the Dutch TTF fell to 45.5 cents/MMBtu Aug. 18. As a result, to attract cargoes for meeting requirements, Indian buyers needed to pay premiums.

Platts assessed the West India Marker, the benchmark price for LNG cargoes delivered to India, for first-half September at 97 cents/MMBtu premium to the JKM November derivative Aug. 21 as against 20.5 cents/MMBtu premium Aug. 17. The premium for prompt cargoes to India was at the highest level since March at the start of the Middle East war.

"If the JKM-TTF spread does not widen, India would have to continue to pay premiums to JKM, especially in the prompt market," a Singapore-based trader said.

"So far, the purchases have been for September but if the purchases continue to be prompt and the JKM-TTF spread does not widen, November and December will be very tight for cargo availability," another Singapore-based trader said.

India was not the only country buying cargoes for prompt delivery, traders noted.

Bangladesh's Rupantarita Prakritik Gas Co. Ltd. bought four cargoes for H2 August and H1 September delivery and Egypt bought six cargoes through a tender for H1 September delivery.