The Hindu Business Line : Spot LNG prices heading for meltdown

Kolkata, Sept. 12 After having witnessed a high price and low availability situation for nearly four months, the gas market in India may finally be heading for a meltdown.

While fresh addition in liquefaction capacities, lower end summer demand and a nosedive in crude prices have already put the prices of spot LNG (Liquefied Natural Gas) contracts on check, the spot LNG demand in the country may fall further due to a sharper decline in naphtha prices. Naphtha is used an alternative fuel to natural gas and LNG in a large number of industries, especially in fertiliser.

It is, however, not clear whether the emerging situation would ease pressure on the margins generated by aggregators such as the GSPC Group. The company, after having sacrificed margins to maintain its customer base during the recent high LNG price regime, may witness a lower demand situation beginning the second fortnight of September due to weakening of naphtha prices.

Imminent trade loss

According to sources, from a conversion cost of nearly $28-30 a million British thermal unit (mBtu) in August, naphtha is now available in parts of the country at $22 an mmBtu range, lower than the LNG price. Naphtha prices are likely to fall further to $20 level and if that happens spot LNG, unless priced below $18 an mBtu, may become uncompetitive.

The impending situation may also bring about some trade loss for GSPC, which has already aggregated nearly six weeks stock expected to last till the first fortnight of October. While the higher tax regime on naphtha in Gujarat has so far made its LNG supplies competitive over naphtha, a fall in demand — especially from fertilizer and steel sector — is expected beginning second fortnight of this month with revision of naphtha prices by PSU oil marketing companies.

The company is currently keeping a watchful eye on the LNG price movements before booking the October cargo, to avoid any future losses.

Global factors

The recent trade data show that spot LNGs are now available at $20 an mBtu against a projected price of $25 an mmBtu.

Among the reasons behind the check on prices are: addition or higher utilisation of liquefaction capacities at Tobago, Nigeria and Australia by the global majors.

While demand from Japan and Korea are still keeping prices high, industry sources are expecting the prices to ease further before the winter US stockpiling reaches its peak in October.

A correction in NBP (National Balancing point) gas price in major European markets may also weaken the spot LNG prices delivered in India.

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