The Hindu Business Line : Low demand from fertiliser sector to hit spot LNG

Kolkata, Sept. 30 Come October and Gujarat may face sharp drop in demand for spot LNG from the fertiliser sector, which is one of the largest buyers of gas contributing approximately 25 per cent of the total demand in winter.

According to available indications, naphtha – the fuel alternative to gas – may be cheaper by about 2-2.5 per cent (from Rs 40,550 a tonne) following scheduled fortnightly price revision by the PSU oil companies on October1. Gujarat is the country’s largest market for spot LNG.

Gas aggregators in Gujarat were already facing lower demand from the fertiliser sector following revisions that took place on September 16 as the current conversion cost of naphtha stands at $20 a million British thermal unit (mmBtu) as against gas price (for fertiliser) $ 22.5 a mmBtu.

If naphtha prices follow the expected downtrend, the conversion cost for naphtha will be reduced to $19 a mmBtu, making it even more competitive over gas.

PRESSURE ON SPOT LNG

While higher demand from the power sector in the ensuing festive season may offer some support to LNG prices for the time being, industry sources believe that further meltdown in the naphtha prices may create pressure on spot LNG prices which is ruling higher than the crude parity price.

Considering that the November Brent crude ruled at $102 a barrel on the ICE Futures exchange in London in the early hours today, the parity price for natural gas works out to be $16.75 a mmBtu.

Large buyers of spot LNG in India, however, report that supplies were yet to be available below $19 a mmBtu range (excluding the regassification and other costs of $2 a mmBtu).

Mismatch

“There is a price expectation mismatch between the buyers and sellers of spot LNG in India,” a source in a Gujarat- based company told Business Line adding that until very recently spot LNGs were available at parity price during winters and much below the parity price in the summers.

“LNG prices did drop following the crude price meltdown.

However, the drop is simply not enough,” a source said.

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