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Analysis: Prices, projects and policies to aid India's LNG appetite in H2 2020

Highlights

Platts West India Marker has dropped 56% so far this year

Monthly LNG imports bouncing back from 3-year lows

Work on terminals and pipelines resume as lockdown ends

Singapore — Low global prices are helping India's LNG appetite to rebound faster than expected, after a countrywide lockdown kept demand in negative territory for a few months in the first half of 2020, with most analysts expecting the year to end with positive year-on-year growth.

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The sharp fall in consumption that India saw after New Delhi imposed the lockdown in late March in its battle against coronavirus pulled cumulative demand down into the red for most of H1. But the first signs of positive growth are starting to emerge, sending a signal that the worst may be over.

"The weakness in the Asian spot LNG market will support LNG imports into India through H2 2020 despite extended lockdowns in parts of the nation," said Poorna Rajendran, consultant at Facts Global Energy.

India's April LNG imports were the lowest in more than three years, but rebounded 22.4% month on month to 2.38 Bcm in May, official data showed. Preliminary data for June imports showed a 37.6% month on month increase to 111.5 million cu m/day, a rise of 10.6% on year, according to S&P Global Platts Analytics.

"LNG demand over the last two weeks has been very promising. A major driver has been coal-to-gas switching with increased summer power consumption. All operating terminals are operating at peak capacity subject to pipeline constraints," said a senior official at a leading Indian LNG importer.

"If the low LNG price environment continues, H2 should be fairly strong. While it will be difficult to entirely make up for the COVID demand loss, still some make up can be expected. We could end year with 22 million-23 million mt/year of LNG imports," the official added.

S&P Global Platts Analytics expects Indian LNG imports to grow by an average of 11 Mcm/d year on year in H2.

Trade sources said industrial and power demand had recovered to 90% of normal levels as the economy has started opening up. But the city gas distribution network, which was hit in a major way during the lockdown, might take longer to recover completely as parts of the country were still facing operational restrictions.

As far as projects are concerned, H-Energy's Jaigarh FSRU is expected to start up in H2; the commissioning has been delayed from Q2 due to COVID-19. In addition, the Kochi-Bangalore pipeline is expected to be completed in Q3, helping to boost Kochi terminal's utilization rate.

BUYERS GRADUALLY RETURN

"Opportunistic buying has appeared among Indian importers as more normal economic activity resumes," said Jeff Moore, manager for LNG analytics at S&P Global Platts Analytics.

The S&P Global Platts West India Marker or WIM has dropped by around 56% from the beginning of the year to $2.113/MMBtu as of July 1. Over the same period, the JKM has dropped by about 60% to $2.15/MMBtu.

Indian buyers have been looking to procure cargoes for H2 2020 and 2021, while the forward curve is still pressured lower due to the prevailing bearish market outlook.

GSPC had issued a JKM-linked tender seeking seven cargoes, one cargo per month from December 2020 to June 2021. They awarded December 2021, March and June 2021 cargoes at an average of JKM December 2020 minus 35 cents/MMBtu, average of March 2021 JKM minus 30 cents/MMBtu and average of June 2021 JKM minus 23 cents/MMBtu, respectively.

These prices for December 2020, March 2021 and June 2021 equate to a fixed price of $4/MMBtu, $4.225/MMBtu and $3.62/MMBtu, respectively, taking into account the JKM derivatives forward curve as of July 1.

Reliance Energy had also tendered to procure one cargo per month over July-October 2020, but pricing details for the tender were limited.

POLICY SUPPORT

India in recent months has witnessed a series of developments aimed at boosting gas consumption.

Petronet is hoping that the pricing of term volumes will witness a dynamic shift under which India will be able to seal deals based on spot markers. It could finalize a 1 million mt/year spot-linked deal soon.

In addition, India's Petroleum and Natural Gas Regulatory Board has announced that LNG stations would be excluded from the purview of CGD exclusivity licenses issued for specific geographical areas. This would help expand LNG's reach and draw in private investors.

The country also recently saw the launch of its first natural gas trading platform. For the first phase of the launch there will be three pricing nodes, with ex-terminal prices at two of India's busiest LNG terminals, Dahej and Hazira in Gujarat on the west coast of India, along with the domestic gas price in Oduru, Andhra Pradesh on the east coast.

In addition, the government is also aiming to simplify the gas pipeline tariff structure to make the fuel affordable to all.

"These factors will support India's LNG demand, if not immediately. "It has created an environment for many sectors to look at LNG more seriously than ever," said an Indian industry source.