Even as India looks to push through a controversial hike in gas prices at home, the country is simultaneously working towards easing the prices of expensive LNG imports. India, the world?s fifth largest LNG importer, along with Japan, the world?s largest LNG importer, are looking to use their weight to propose a new pricing formula that reflects the true demand-supply dynamics in Asia.
The two countries believe current pricing indexations such as the Japanese Crude Cocktail and Brent (both linked to crude oil prices) as well as Henry Hub (determined in the US) and the National Balancing Point (UK) are not adequately representative of Asian markets.
An oil ministry official explained that the joint effort by India?s Petroleum Planning and Analysis Cell (PPAC) and Japan?s ministry of economy, trade and industry (METI) is aimed at mitigating increasing import costs in Asia and maintaining stable supplies. The results of the exercise are expected to bear fruit in September when a report on gas pricing is expected to be published.
Asian importers like India, China, Japan and Korea, along with Latin American countries like Brazil, pay the highest prices for LNG at around $13-16/ mmBtu, according to Federal Energy Regulatory Commission. In contrast, LNG prices in US and European countries like UK, Spain and Belgium range between $3-$10 mmBtu.
On the other hand, domestic gas resources in India range between $4.2-5.7 per mmBtu. Oil minister Veerappa Moily recently said that state-backed gas utilities are in talks to import 20 mt of LNG every year and any price of $10 mmBtu will remain a challenge.
An official from state-owned gas utility GAIL India said that the price being worked out is a regional price for gas consuming countries in Asia. ?Today the prices are skewed in favour of suppliers. A regional index will take the demand side into the equation,? the official said. GAIL plans to import 34 cargoes of LNG in 2013-14 and has so far locked in 6-7 million tonnes per annum (mtpa) of long term gas contracts that will land in India from 2016-17. These contracts are mostly linked to JCC and Henry Hub prices.
In 2012, the overall global LNG deliveries showed a reduction of 2.5 mt to 239 mt, while Asian demand continued to grow in 2012. Asia imported an additional 15.6 mt in comparison to 2011 (a growth rate of 10%). This growth was led by Japan which imported a record 87.3 mt of LNG, up 11%. Since the 2011 Fukushima nuclear disaster the company has stepped imports of LNG.
India, on the other hand, is the fifth largest importer of LNG after Japan, South Korea,UK and Spain and accounted for about 13.15 mt or 5.5% of the total LNG trade. With domestic natural gas output stagnating, India is expected to become a net importer of natural gas in next two years.
Currently, imports meet about a third of India?s gs needs. The nation at present has three operational LNG import facilities at Dahej, Hazira and Dabhol.
A new terminal will be commissioned in Kochi later this year.
Sunjoy Joshi, director, Observer Research Foundation, however, said that planning a gas pricing mechanism for Asia does not make sense as there is no free movement of gas within the region to help in price discovery. ?Prices can be fixed in trading hubs where gas is traded freely between countries as in the case of US or Europe,? he said.
The oil ministry official said that the pricing mechanism will need the backing of supplier nations to gain acceptance globally. ?