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Feature: India's LPG imports expected to hit 14 mil mt in fiscal 2018-19

Singapore — India's LPG imports are expected to rise by 2 million mt, or nearly 17% year on year, to about 14 million mt in fiscal 2018-2019 (April-March) as demand from households surges on the government's efforts to shift to clean fuels, sources familiar with the matter said.

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Imports are set to reach around 12 million mt in fiscal 2017-2018, making India the world's second-biggest LPG importer, and in the next five years, annual imports are expected to rise to around 16 million mt, they said.

Though this will drive demand for ships, maritime analysts said Indian LPG importers and shipping companies would focus on chartering or buying secondhand vessels, and not rush to build their own VLGC armada as was done by Chinese importers amid ample global vessel supply that has pushed rates lower.

The country imported 1.133 million mt of LPG in December, down 8.5% from 1.238 million mt in November, the highest last year, latest provisional data from the country's Petroleum Planning and Analysis Cell showed.



In 2017, Indian imports totaled 11.896 million mt, up 22.27% on the year, PPAC data showed.

Japan imported 10.54 million mt of LPG in 2017, up from 10.52 million mt in 2016, while China imported 18.52 million mt, official and industry data showed. Chinese customs data do not include shipments from Iran.

India's LPG demand is expected to grow by 3 million mt in fiscal 2018-19 from about 24 million mt in 2017-2018, the sources said. Over five years, annual demand is expected to rise to 30 million mt, they said.


US IMPORTS NOT YET A PRIORITY


India aims to boost domestic LPG usage via income-based subsidies. This, along with the recent decision to cut the goods and services tax on LPG sold by the private sector to domestic users to 5%, would spur the competitiveness of the private sector and demand, industry sources said.

Polls will also be held in many states this year, followed by general elections in 2019. "This is resulting in a rush for releasing new connections," a trader with an international oil company said, adding that the union government has sanctioned the release of 30 million LPG connections, targeting the poll-bound states.

Local governments not linked to the ruling Bharatiya Janata Party are also introducing free connections. For example, Karnataka state has announced 3 million free connections with cooking stoves and two refills.

A source from a state-run company said India will continue to import mainly from nearby Middle Eastern producers. Large US imports will not come in the near term, he said, even as more US LPG are arriving in Asia, including mixed propane/butane cargoes suitable for India's market.

"The more US shipments go to North Asia, the more supply from the Persian Gulf can be made available to India. India can get better bargains," he said, adding that importers must assess if the US LPG can be economical due to the distance.

Other than term cargoes from Saudi Arabia, Qatar, the UAE and Kuwait, India also imported from Iran after the Western sanctions were lifted in April 2016. Almost 99% of India's LPG imports were from the Middle East last year.

"So although there is huge scope for moving toward the US LPG, I do not see any major shift considering India's short-haul distance from the Middle East," Shresth Sharma, lead research analyst at Drewry Maritime Research, said.

The round voyage takes eight days (excluding port days) from the Middle East to the west coast of India, versus 50 days from the US, he said.

"So, this would act as a big hurdle for the US LPG," Sharma said. Similarly in the LNG market, from February 2016 through November 2017, only 10 LNG cargoes from the US were shipped to India, he said.

"Moreover, growing LPG exports from Iran would cap any major shift toward the US and therefore I expect only spot cargoes -- not many -- from the US over the next two to three years."

A trade source with an international oil company said that India is also a potential destination for Australian LPG to be delivered on the Indian east coast on the Persian Gulf-East Asia route.

He said a slew of import facilities are expected to come on stream and ease the current infrastructure constraints, which should support LPG growth.

Aegis Logistics recently launched its 1.5 million mt/year terminal at Haldia. Adani Mundra's 3.5 million mt/year terminal is likely to come onstream by end 2018, while BPCL's 1.5 million mt/year import terminal is likely to start by mid 2019. Adani is considering building an import terminal at Dhamra, while IOC is setting up import facilities at Kochi and Paradip.

"All these are going to significantly improve the import capacity, which will drive a virtuous cycle of additional new connections, additional sales and additional import tonnage," the trade source said.

However, the source at the state-run company said that while domestic output has been lagging demand growth, refining expansions could curb ballooning imports.

Indian Oil Corp. aims to complete the expansion of its Gujarat refinery in Vadodara to 18 million mt/year by 2020 and the Panipat refinery capacity to 25 million mt/year by the end of fiscal 2020-21.

Hindustan Petroleum Corp. Ltd. aims to almost double Visakhapatnam's capacity to 15 million mt/year by March 2020. India's big refinery project in Maharashtra, being developed by state-owned IOC, HPCL and Bharat Petroleum Corp. Ltd., will start around 2022-2023, while a HPCL project in Barmer is due by March 2023.

Privately run Reliance Industries aims to raise total capacity at its Jamnagar refining complex to 100 million mt by 2030. "Demand is increasing but domestic production is also rising and catching up," the source said.


SHIPPING DEMAND


Though Indian importers mainly use term-charter vessels for Middle East cargoes, Indian shipping companies Great Eastern Shipping, Varun Shipping and Global United only have a fleet of seven VLGCs, with a total capacity of 542,501 cu m, Olivia Watkins, gas analyst with marine valuation provider VesselsValue, said.

This compares to the global VLGC fleet of 255, plus 29 on order.

Indian shipowners prefer spot or time-chartered vessels and Indian shipping companies generally purchase old vessels. Varun Shipping bought the BW Borg, and state-run Shipping Corp. of India bought the BW Vision in 2016.

Shipping giant BW LPG also formed a joint venture with Indian company Global United Shipping last year to serve the Indian market. VesselsValue records 16 VLGCs under charters of one to two years with IOC, BPCL and HPCL since 2011.

"Market rates for hiring VLGCs remain very depressed due to the oversupply of tonnage on the market. Long-term hire or purchase of old vessels would be far more economical for Indian companies," VesselsValue analyst Court Smith said, adding that investment in domestic Indian yard expansions or greenfield sites was not needed as there was substantial excess in global shipbuilding capacity.

Drewry's Sharma said new vessel orders look less likely for now, though he expected to see more joint ventures such as that formed by BW LPG, considering India's bullish LPG demand outlook.

"Despite the government's "Make in India" program, I do not see it happening anytime soon considering the lack of experience of Indian shipyards -- lack of technological know-how and higher lead time to build a vessel locally. We also have an example from the LNG sector, with Gail scrapping its tender to build LNG vessels locally," he added.

--Ramthan Hussain, ramthan.hussain@spglobal.com
--Edited by Pankti Mehta, pankti.mehta@spglobal.com