Natural Gas: Surge in natural gas imports by Europe hits India’s supplies

It is becoming increasingly difficult for Indian importers to source natural gas from international markets as Europe moves much of the global supply to its coasts before winter amid Russian supply restrictions.

According to people familiar with the matter, IndianOil’s tender for a spot-liquefied natural gas (LNG) cargo has not recently received any bids. Even LNG contracted under long-term agreements is no longer safe as Russia’s Gazprom has suspended supplies to GAIL, they said. This has resulted in

reducing gas supply to industries including fertilizer, energy and petrochemical plants, the above people said. Supplies for use in CNG vehicles and homes are maintained. But the industrial segments served by city gas companies are being hit, they said.

In FY22, India consumed 63.9 billion cubic meters of gas, of which 48% was imported.

IndianOil and GAIL did not respond to inquiries.

Scarcity is the new challenge for Indian gas consumers who already suffer from high prices, currently around $42 per mmBtu in the Asian spot LNG market.

Users who reduce consumption

LNG spot price has doubled since mid-May and is up 23% since the beginning of the year.

Supply restrictions by Russia have sparked panic in Europe, which is pushing up LNG prices and pulling loads from all directions to fill its storage for the winter, when increased heating needs boost gas demand.

LNG suppliers are increasingly tempted to dishonor long-term contracts to serve Europe, as the high prices offered by buyers on the continent can more than offset penalties for missing deliveries to long-term customers, a sector director said.

Imports of LNG into Europe are reported to have increased by 56% in the first seven months of this year compared to a year earlier.

GAIL has a 20-year contract with Gazprom for 2.5 million tons of LNG annually. That’s nearly a fifth of GAIL’s global LNG portfolio.

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“It is difficult to replace Gazprom gas because it is linked to oil prices and is therefore much cheaper than current spot market rates,” said one of the aforementioned individuals.

Customers are unwilling to accept replacement inventory at double or triple the expected rate, leaving GAIL with the task of rearranging the available pool among buyers as much as possible.

Indian consumers are also responding with demand adjustment. Refineries, generators, petrochemicals and other manufacturers are reducing gas consumption and switching to alternative fuels such as naphtha, heating oil, LPG and coal.

According to official data, LNG imports fell by 10% in June compared to last year.

Shell and Shell did not import LNG in June compared to a combined import of 281 million metric standard cubic meters in the same month last year.

Deliveries from other long-term suppliers such as Qatar, the US and Australia will be received under contracts, executives said.

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