The price of spot liquefied natural gas (LNG) has come down to $10 a unit (gas is measured in million British thermal unit) compared with $20 a unit in February, but Indian buyers are unlikely to benefit from cheaper prices as they have already entered into term contracts for requisite supplies.

The current price is lower than the existing medium-term (up to two years) as well as long-term (up to 25 years) contracts entered by Indian importers.

Missing the trend

Sources in gas producer GAIL (India) Ltd confirmed the trend. Weak demand and a lack of tolling facility are major reasons for low prices, they say.

“Gas-based power stations are idle. Demand is also low in the fertiliser sector. Moreover, as most end-consumers have already entered into long- or mid-term deals, there is little space for spot-gas at this juncture,” a GAIL official told BusinessLine .

GAIL meets most of its requirements through Petronet LNG’s Dahej (12.5 million tonnes) terminal in Gujarat that focuses on contracted gas to safeguard against market volatility.

With joint venture Ratnagiri Gas and Power’s Dhabol terminal in Maharashtra closed due to adverse weather conditions, GAIL doesn’t have much option to step up spot LNG imports.

Petronet’s Kochi terminal is suffering from lack of evacuation facility. The Netherlands-based Shell built the Hazira terminal in Gujarat to deal only with the spot market. But from 2010, Gujarat State Petroleum Corporation (GSPC) is using the terminal for bringing contracted gas.

GSPC controls the gas market in Gujarat. The company entered into a medium-term contract for buying gas at $14 a unit in April, and has no major appetite for spot gas.

Price movement

LNG prices rocketed since the Fukushima earthquake in March 2011, leading to the closure of nuclear power plants in Japan. The unexpected rise in demand triggered a new high in global gas prices.

For the last three years, the Indian prices were ruling between $16-20 a unit.

But changes in global gas availability altered the equation.

First, the winter has been less harsh this year, thereby impacting demand. Second, Japan and South Korea – the biggest consumers in Asia – restarted their nuclear facilities.

With India and China generating up to 80 per cent of electricity from coal, Europe is building a large number of coal-based facilities.

Easing supply

Meanwhile, on the supply side, Exxon Mobil set up a 6.9-mt terminal in Papua New Guinea in April and started catering to the Asian markets, according to a report.

As a result, Japan booked a cargo at as low as $10.6 a unit in July, meaning LNG should now be available at around that price in India.

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