Recent LNG Price Rise Will Not Impact Indian Demand: Research
The recent run-up in the global prices of LNG is unlikely to impact demand for the commodity in India but would affect the margins of city gas distribution (CGD) companies, a report by Crisil, an analytics firm, said August 2.
Over the past six months, LNG prices in Asia have increased by over 70%, driven by rising imports from China. After stabilising at about $8.0-8.5/mn Btu during May-June and September-October last year, Asian spot LNG prices reached peak season price level of $10.0-10.50/mn Btu, Crisil said.
In the past, higher prices have impacted LNG consumption in India, a price-sensitive market. However, this time, Crisil believes, things are slightly different, with consumption rising steadily. “The Supreme Court’s decision banning polluting fuels such as fuel oil and petcoke for industrial use in some northern states has been favourable for LNG demand. The Gujarat High Court has also tightened norms on use of coal gassifiers by ceramic companies in Morbi and Wankaner,” said Rahul Prithiani, director, Crisil Research. As per the latest government data, India's LNG imports during April-June (1Q 2018-2019) were 7.05bn m3, up 19% year on year. Imports in June were up 39% year on year to 2.51bn m3 of pipeline gas in the form of LNG (about 1.86mn metric tons).
What currently works in favour of LNG as an industrial fuel is its improved competitiveness compared with alternatives such as fuel oil and LPG. The regulatory push to expand CGD networks is also stoking demand, Crisil said. India recently concluded its biggest ever CGD licencing round, which saw strong response from the industry.
According to Crisil, at an average crude price of $75/b, the landed cost of fuel oil and liquefied petroleum gas (LPG) is expected to be $14.3/mn Btu and $19.2/mn Btu, respectively. In comparison, at an LNG price of $9.5/mn Btu, industrial piped natural gas is expected to rule at $14.8/mn Btu.
In the medium term, LNG demand will be supported by development of gas infrastructure in the largely untapped eastern region. The government’s focus on increasing the share of gas in India’s overall energy mix, and the development of infrastructure in terms of LNG terminals and pipeline connectivity, also bode well for LNG demand over the medium to long term, the report stated.
“This, however, will have a bearing on the margins of CGD companies,” said Mayur Patil, associate director, Crisil Research. “Higher LNG prices, coupled with upward revision in domestic gas prices, are expected to impact the operating margins of CGD companies. However, absolute marketing margins are expected to be supported on account of healthy volume growth.”