A Lot Of Gas

Updated: Feb 27 2004, 05:30am hrs
Under normal circumstances, one would assume that imports of liquefied natural gas (LNG) are done on the basis of long-term contracts. However, it is surprising to note that after importing the first tranche of LNG earlier this year, promoters of Petronet LNG Ltd (PLL) are scouting for gas from the spot market, ostensibly to meet the sudden rise in demand for LNG in the country. Why has this happened And, more importantly, what does it tell us about our domestic market for LNG For long-term LNG purchase contracts, the LNG supplier ideally needs bulk users such as power and fertiliser companies as they need gas on a continuous basis. Such a deal would give the LNG purchaser enough leverage to negotiate a good deal with the supplier. This is how countries such as China (which was a late entrant in the LNG market compared to India) have negotiated their LNG supply agreements and have reportedly got a far better deal than their counterparts in India.

In the case of PLL, the additional demand, amounting to one million tonnes (MT), over and above the 2.5 MT which the company has already booked from Qatar, surprisingly comes from power and fertiliser companies. For the first year, PLL had contracted to sell gas to non-fertiliser and non-power based companies, when ideally it should have been the other way round.

While companies such as PLL may have got the first movers advantage on the LNG front in India, one does not know whether the spot market would offer a good price. It can be low, but it can be high as well. The former would be great news but if it is the latter, it is the power and fertiliser companies which would stand to lose.

More importantly, if power and fertiliser companies still go ahead and buy this LNG (for instance, due to domestic shortfall), it is the final consumer that would have to take the hit. This spot buy could well be a one-off case. This is not to suggest that spot buying should be avoided, but rather that spot buying should be limited to small users of gas. But for that, proper planning and estimates for gas are of paramount importance. At present, despite being energy deficient, India is not seen as a big gas market.

Unlike countries such as Japan and China, we cannot dictate the gas market and for a long time will continue to be price takers. At least a well thought-out strategy would enable us to carve out a niche in the international gas market.