Geopolitical tensions such as the U.S. withdrawal from the Iran nuclear deal may have sent the prices of crude oil to record highs, but this hasn’t affected the order book of Petronet LNG Ltd., India’s largest importer of liquefied natural gas.
The company says its customers haven’t defaulted on buying committed volumes from its terminals. That’s because there is a small differential between spot prices and prices for long-term contracts, both of which are on the upswing, Prabhat Singh, managing director of Petronet, told BloombergQuint. “We are picking up all the volumes at Dahej LNG Terminal and gas imported from the Gorgon LNG project in Australia.”
Some of India’s biggest oil companies, including Gas Authority of India Ltd., Indian Oil Corporation Ltd., and Bharat Petroleum Corporation Ltd., buy regassified LNG — or LNG that’s converted back to the gaseous state — from Petronet.
According to data by Petroleum Planning and Analysis Cell, India’s natural gas production rose 2.8 percent to 31.7 billion cubic meters while imports of LNG expanded 7 percent to 26.5 billion cubic meters in India in 2017-18. Imported LNG accounted for about 45 percent of total gas consumption in the country.
“The prices will go high but whether it's going to be consumed or not is the question,” Singh said. “Spot prices have also been high, so if the differential is less, chances are everybody is going to pick up the volumes.”
Most of the natural gas imported in Asia is in the form of LNG, while its price is indexed to crude oil on a long-term contractual basis. The weekly spot prices at the Singapore SGX LNG Index have risen by 62.28 percent over the past year. The price of Brent crude has hit $80 per barrel, the first time since 2014.
“Petronet has been wise enough to structure its contracts to securitise everything on a long-term basis,” Singh said.
The LNG importer reported an 11 percent increase in net profit on an annual basis for the quarter ended March to Rs 522.76 crore. “To run an LNG plant, you need assured volumes of 70-80 percent and only then can you play on the spot market for a small percentage. Since spot prices as well that of crude are high, we are safe,” he added.