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India pandemic weighs on natural gas demand amid souring GDP outlook

Highlights

City gas demand likely down 40-50%, industrial demand hit

More LNG carriers diverted from Indian terminals

2nd wave may cut 2.8 percentage points from GDP growth: Ratings

Singapore — India's deadly COVID-19 outbreak and widening localized lockdowns have soured the country's economic growth outlook, stifled its natural gas demand and resulted in more LNG carriers being diverted by gas companies, an analysis by S&P Global Platts showed.

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On May 8, the southern Indian state of Tamil Nadu -- one of the country's most industrialized and among its largest by GDP -- imposed a two-week lockdown amid growing infections, joining several other states that have taken similar measures.

Tamil Nadu is home to Indial Oil Corp.'s Ennore LNG terminal with a capacity of around 5 million mt/year, and market participants expect the lockdown to hurt industrial and city gas demand similar to other gas consuming states like Gujarat and Maharashtra.

An Indian gas aggregator estimated that city gas demand had dropped by 40-50%, and demand from the industrial sector could drop by 20-25%.

"Some workers in industries have gotten infected, and many of them have gone back to their native towns. Our healthcare infrastructure isn't enough to treat everybody. Now, not only city gas demand is down [although it's still the most affected sector]," the same gas aggregator said.

A trader said while the power and fertilizers sectors were still operating, other labor-intensive sectors like glass and ceramic industries have been affected.

"The scope of lockdowns affects mobility, and is indicative of the strength of India's recovery. Much more extensive restrictions would prolong the pain of badly hit sectors, such as retail and tourism," S&P Global Ratings said in its recent India report.

LNG vessel diversions

Meanwhile, more LNG carriers have been diverted from India.

The 160,400 cu m vessel Cubal that was headed to Dahej LNG in western India was diverted to Fujian where it arrived on May 10, according to Platts' trade-flow software, cFlow. The cargo originated from Angola LNG and was sold to state-run CNOOC.

The 266,000 cu m LNG carrier Shagra, which loaded at Qatar's Ras Laffan terminal, was diverted from western India to South Korea's Incheon terminal where it is expected to arrive May 16, according to cFlow.

This is in addition to four LNG carriers that were previously diverted, according to Kpler. Three were diverted to Europe -- Qatargas-chartered Ejnan and Lusail and Angola LNG's Sonangol Etosha, and the GAIL-chartered Gail Bhuwan that loaded at Cove Point in the US was diverted to the Middle East.

Kpler had said that an increasing number of vessels were also exhibiting floating storage behaviors such as circling in their trajectory, idling at anchorage, or slowing down their speed, in line with Indian buyers curtailing their spot LNG purchases of about three to four spot LNG cargoes per week.

One trader said sellers were also happy to divert these cargoes as they can get better prices from elsewhere. However, on a year-on-year basis, India's LNG imports have not fallen as low as last year although year-ago levels represent a low base.

"Indian LNG demand has been remarkably resilient over the past few months and we haven't seen the same level of impact as we did last year during this time," Jeff Moore, manager - Asian LNG Analytics at S&P Global Platts, said.

"Platts Analytics has taken a more conservative view of Indian LNG imports in the months ahead versus previous expectations, but imports are still expected to track closely to year-ago levels from June through the remainder of the year," he added.

"This is even amid a significantly higher spot price environment compared to last year when end users were able to take advantage of the historically low prices compared to this year where spot prices are trending towards double-digits," Moore said.

GDP growth outlook

"India's second COVID-19 wave could knock off as much as 2.8 percentage points from GDP growth in fiscal 2022, derailing what has been a promising recovery in the economy, profits, and credit metrics in the year to date," S&P Global Ratings said in a report dated May 5.

It currently forecasts GDP growth of 11%, and a moderate scenario would mean full-year growth of 9.8% for fiscal 2022 while a severe scenario would mean 8.2% growth.

Ratings said the moderate scenario assumes that the seven-day average of reported cases peaks at around late-May, and then declines at a rate of 2% per day.

"The rate of decline in late 2020 was 1.7% per day. This means that new cases fall to half of peak levels in about one month," it said.

"The severe scenario assumes a later peak and a slower decline. Specifically, that the seven-day average of cases peaks in late-June and then declines at 1% per day. This means that new cases fall to half of peak levels in just over two months," Ratings said, adding that the assumptions are based past experiences do not forecast the pandemic's trajectory.

Corrects name/owner of LNG terminal in 3rd paragraph