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India LNG buyers spoilt for choice as China woes create problem of plenty

Highlights

India takes some cargoes diverted from China

LNG buyers float import tenders as prices hit record lows

Lack of excess handling capacity, pipelines to limit import growth

Singapore — 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, the world's second-largest natural gas importer behind Japan.

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The South Asian nation has floated a series of import tenders as well as absorbed some of the diverted cargoes at attractive prices.

However, analysts warned that although the Indian market has witnessed a sharp increase in interest for cargoes, infrastructure bottlenecks would limit the incremental volumes that India can absorb above and beyond its immediate needs, despite desperate sellers looking to close a deal.

"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. With new infrastructure available it's possible that India could represent an important outlet for excess LNG," he added.

Moore reckoned that India's imports were averaging roughly 15 Mcm/d higher so far this year compared with the same period in 2019.

"This really demonstrates how important a growth market India is in the broader context. 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," he added.

India LNG imports

Logical option for diverted cargoes

One such LNG cargo, the Marvel Pelican, is currently heading to Dahej in India after having changed its destination from China, according to cFlow, Platts trade-flow software, and researcher Energy Aspects. And analysts said more diversions of cargoes towards India maybe 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. We are seeing a high number of LNG buying tenders from Indian firms at the moment," he added.

Despite the optimism, analysts flagged the constraints that 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. This remained a key bottleneck in 2019 when low spot prices struggled to boost India's LNG demand significantly," 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 that 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 to 30% from the existing 17%, once the Kochi-Mangaluru pipeline is commissioned this year.

Flurry of tenders as prices fall

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.

Firms like IOC, GAIL, Torrent Power, GSPC, and Reliance have issued tenders seeking multiple cargoes for delivery across 2020. Among the slew of tenders issued recently, one was for the newly commissioned Adani-Total and GSPC owned Mundra LNG terminal in Gujarat.

As a comparison, India is estimated to have procured 120-130 cargoes via the spot market in 2019.