India LNG buyers grab low-price cargoes as China woes create problem of plenty

Indian buyers are rushing to snap up LNG at relatively low prices as suppliers look for alternative markets amid the coronavirus epidemic that has sapped the appetite for cargoes in China.

"India certainly represents an important market which could absorb some additional volumes," said Jeff Moore, manager of Asian LNG Analytics at S&P Global Platts.

"The new Mundra terminal was recently commissioned but has so far seen very low utilization rates," Moore added. "With new infrastructure available, it's possible that India could represent an important outlet for excess LNG."

Moore said India's imports are averaging roughly 15 Mcm/d higher this year compared with the same period in 2019.

"This really demonstrates how important a growth market India is in the broader context," he added. "And as long as infrastructure continues to get built out and allow for additional volumes, it's possible more LNG could head in that direction."

Buying intensified

One diverted LNG cargo, the Marvel Pelican, is headed to Dahej in India after changing its destination from China, according to cFlow, Platts trade-flow software, and researcher Energy Aspects. Analysts said more diversions towards India may be in the offing in the near future.

"We were already seeing price-sensitive buyers in India buying more LNG as a result of record-low LNG prices in recent months; this was happening even before the COVID-19 outbreak," said James Waddell, senior global gas analyst at Energy Aspects.

"The destruction of Chinese demand because of the virus and the resultant distressed LNG cargoes will further encourage Indian cargo buying," he added. "We are seeing a high number of LNG buying tenders from Indian firms, at the moment."

Price drops

Spot LNG prices delivered to India have dropped by over 35% from the beginning of the year to below $3.00/MMBtu early February due to the dampened Chinese demand outlook after the COVID-19 outbreak.

The news of China's largest LNG buyer, CNOOC, declaring force majeure further pressured prices to below $2.50/MMBtu DES West India, Platts data showed. The benchmark for North Asian spot LNG prices, JKM, plunged to historic low of $2.713/MMBtu on February 14, as per the data.

Indian LNG importers have issued a flurry of tenders to capitalize on lower spot LNG prices, seeking both spot- and short-term cargoes. So far, Indian end-users have issued tenders and procured almost 67 cargoes, amounting to about 4.3 million mt, to be delivered during the year, Platts data showed.

Infrastructure constraints

Despite the optimism, analysts noted constraints could curb India's efforts to absorb incremental volumes.

"While weakness in Asian spot LNG prices will increase India's appetite for prompt LNG imports, infrastructure constraints will limit LNG demand growth," said Poorna Rajendran, consultant at Facts Global Energy.

"The start up of Mundra LNG terminal and H-Energy's Jaigarh terminal and the completion of GAIL's Kochi-Mangaluru pipeline will determine Indian LNG demand growth in 2020," he added.

Analysts said while additional LNG demand capacity in India is limited by pipeline capacity, incremental demand would depend on the utilization rate at the newly opened Mundra terminal and H-Energy's Jaigarh FSRU, which is expected to start in Q2 this year.

Petronet LNG's Kochi terminal could also facilitate additional demand, with utilization this year expected to increase from 17% to 30% once the Kochi-Mangaluru pipeline is commissioned this year.