Two Factors That Dented India’s LNG Imports In January

India’s liquefied natural gas imports in January fell on higher international prices and a rise in domestic production.

LNG imports fell 10.8% over a year earlier to 2,408 million standard cubic meters in January, according to data released by the Petroleum Planning & Analysis Cell. Excluding the 1,640-mmscm imports in the pandemic-marred April 2020, it's the lowest in 32 months.

A BloombergNEF February report forecasts that India’s LNG imports in the first quarter of 2022 will be more than a fifth lower than the corresponding year-ago period.

High spot LNG prices continue to hinder the growth in nation’s gas demand in the first quarter, according to the report. And industrial clusters such as Morbi in Gujarat have cut LNG use and switched to cheaper propane and fuel oil.

For April 2021 to January 2022, total LNG consumption rose 7.85% year-on-year to 54,589 mmscm, PPAC data showed.

Domestic production jumped 21.2% to 27,803 mmscm, while LNG imports declined 3.2% to 26,785 mmscm during the period. And it's likely to outpace the gas demand, lowering imports.

Domestic natural gas ouput was up 11.7% year-on-year at 2,767 mmscm in January. That was aided by higher output from Reliance Industries Ltd.’s R Cluster and Satellite Cluster fields in the KG-D6 basin, and commencement of gas production from Oil & Natural Gas Corp. Ltd.’s U1B deepwater well in August.

JM Financial expects RIL’s gas production to jump 24% over a year earlier to 31 mmscmd in FY23. ICICI Direct sees ONGC’s gas production to increase 7.2%.

Higher domestic production and LNG spot prices, as per Fitch Ratings, are likely to weigh on imports through to the first half of FY23. But imports should rise steadily over the medium term as consumption picks up.

Administered Gas Price

India's administered gas price was increased 62% to $2.9 an mmBtu for the second half of FY22.

It's calculated basis global benchmarks and revised every six months under the administrative price mechanism. And with a surge in international rates, analysts expect a significant jump in April 2022 revision.

According to Emkay Global, domestic administered price can reach “unsustainable levels”. The brokerage expects APM gas prices to jump to $6.5 an mmBtu for H1 FY23 from the current $2.9.

Bhanu Patni, senior analyst at India Ratings & Research, expects domestic gas prices to almost double in the next control period and increase further in the second half of FY23. “The gas price ceiling from difficult fields will also subsequently increase.” Such increase in prices, Patni said, should also help in boosting domestic production as pricing becomes remunerative.

The price of natural gas produced from discoveries in deep water, ultra-deep water, and high-pressure/ temperature (also known as gas from difficult fields) was raised 69.3% to $6.13 an mmBtu starting October. RIL, in its third-quarter earnings presentation, said prices of domestic gas produced from difficult fields were expected to go up to $10 an mmBtu from $6.13.

Spot Gas Prices

The international prices have been rising for the past few months on low storage inventories and higher winter gas demand. The rally was fuelled after Russia invaded Ukraine, causing uncertainties over gas supply to central Europe.

While spot LNG prices, as measured using the Japan-Korea Marker, have retreated from a high of $51.8 an mmBtu in the first week of March, they are still elevated at $38.96. In the last one year, the price, according to Bloomberg data, has jumped more than 6.5 times.

Over the past nine months, the Institute for Energy Economics and Financial Analysis said, “gas/LNG has neither been affordable nor available”.

The institute, in its January report, raised concerns about LNG price volatility as it can increase operating costs of downstream projects in the industrial, power, and city gas distribution sectors. It asserted that high LNG prices forced industrial consumers to turn to highly polluting petroleum fuels such as naphtha and furnace oil that could set back India’s nationally determined contribution commitments under the Paris agreement.

Sector Impact

Barring the fertiliser sector, city gas distributors, refinery, and petrochemicals witnessed a decline in the proportion of imported LNG in their total gas consumption, according to PPAC data.

The impact of high spot LNG prices is usually minimal on the fertiliser sector due to government subsidies. City gas distributors, too, are insulated as domestic gas is allocated to them on a priority basis.

Power, refining, and petrochemicals industries are likely to see their input costs increase with a surge in spot LNG prices, hurting margins.