loader2
Partner With Us NRI

Open Free Demat Account Online with ICICIDIRECT

BLOG

LNG regarded as fuel for future amid crisis

ICICI Securities 14 Mar 2022

What’s buzzing:

With forecast of tight LNG supplies during CY21-25, geopolitical uncertainties have again risked supply disruptions, leading to increased volatility in LNG prices.

Context:

Since late CY21, spot LNG prices have skyrocketed to over US$30/mmbtu (from an average US$4-12/mmbtu in the last two years) amid post-pandemic recovery in demand and low inventory storage. As per media sources, Europe LNG demand in CY22, is expected to grow at least 20% due to reduced Russian Gas, which is further creating higher competition for limited LNG supplies.

Our Perspective:

Total worldwide LNG supplies (Q4CY20-Q3CY21) were at 372 MMT (expected to double till 2030). India’s LNG imports were at ~25 MMT for the same period (50-55% of India’s total gas demand). Part of LNG imports are long term (oil-linked contracts via Qatar, Gail from Gazprom and swapping of US Sabine Pass and Cove Point cargoes through tenders) while the rest is spot LNG. While LT cargo remains relatively cheaper (at US$10-12/mmbtu), prices are expected to go up, with continued higher oil & gas prices. Affordability of LNG remains key to its future uptake by emerging markets such as India, as power producers can break even only below US$6-7/mmbtu LNG (as per media reports) while refineries can afford US$15/mmbtu (post which they switch to fuel oil and naphtha). CGD, on the other hand, can handle higher LNG prices as they are subsidised by the Government of India (via cheaper domestic gas allocation) while fertiliser sector fortunes remain uncertain (due to higher mix of LNG). Higher LNG prices pose a risk to India’s target of raising share of gas to 15% of India’s energy mix 2030 from current ~6%. India’s current LNG capacity is at 42 MMT with new terminals of 19 MMT under construction and 9-10 MMT at the design stage.

Download Our App

Download App
market app