1. Spot LNG price sees gain for first time in 6 months

Spot LNG price sees gain for first time in 6 months

For the first time since November 2014, the prices of spot liquified natural gas (LNG) have seen a northward movement.

By: | New Delhi | Published: April 23, 2015 12:05 AM

For the first time since November 2014, the prices of spot liquified natural gas (LNG) have seen a northward movement. Despite a steep year-on-year decline, the average Japan Korea Marker (JKM) — the benchmark price assessment for spot physical cargoes — for May showed an increase of 1.4% at $7.380/mBtu against $7.279 in April, show data from Platts.

This spells good news for PSU gas marketing and trading company GAIL (India), which is reeling under pressure as it imports most LNG through long-term contracts that are costlier than spot and finding no buyers. As few northeast Asian buyers remained by the end of the assessment period, the focus shifted to India, where importers were seeking prompt cargoes for May delivery. This provided support to prices in the country, with India becoming the premium market in the last few days of the trading month.

“Spot LNG demand for India does look strong heading into the summer. There has been more activity from GAIL, Petronet and GSPC for summer cargoes, possibly due to supply from Yemen being cut off. The more expensive LNG from Qatar delivered on long-term contracts has been cut down,” said Max Gostelow, Platts pricing analyst for Asia LNG.

Year-on-year demand from India looks stable, say analysts. Over the first quarter in 2014, total imported volumes were 3.07 million tonne, while Indian buyers imported only 3.01 million tonne in 2015. The LNG offtake from West Asia is significantly lower at 2.4 million tonne during January-March period compared with 2.78 million tonne in the same perid last year.

“The main reason for this is the lower Qatari (the more expensive long-term contract prices) volumes this year. Qatar sent 2.71 million tonne during January-March 2014 against 2.05 million tonne in the same months this year,” said Gostelow.

GAIL’s contracts to purchase 5.8 million tonne per annum (mtpa) of Henry Hub linked gas and the selling that in India starting 2018-19 was expected to provide large operating leverage and earnings growth to the company. However, in the current scenario where spot purchases are cheaper, GAIL’s expected upside is at risk, say analysts. Industry watchers feel while GAIL may be able to divert cargoes closer to the US (lower shipping costs), there is a risk GAIL may be forced to pay unutilised take-or-pay charges on LNG capacity.

“The prices at which GAIL will import natural gas from the US are likely to be among the most competitive in the world as these will be linked to Henry Hub prices, among the lowest globally. In view of the same, we expect customers in India to find the delivered prices quite attractive,” said the GAIL spokesperson.

With ample cargoes on contract and high inventories to cover demand, northeast Asian buyers’ appetite for spot cargoes remained weak. Spot purchases were mainly observed to be from opportunistic buyers interested in low-cost prompt cargoes.

“Optimising the supply chain, both during construction and operations, is key to reducing costs and speeding up the time to market for LNG projects,” says Gaurav Moda, head (oil & gas practice) at KPMG India. “Those companies that proactively address supply chain now will be best-placed both to deliver their existing projects successfully, and to launch new ones ahead of the competition.”

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Tags: LNG
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