Rise in spot liquefied natural gas (LNG) seen as ploy to reduce natural gas imports

The recent rise in the rates of spot liquefied natural gas (LNG) is being seen as a ploy to reduce natural gas imports as price-sensitive consumers in the power and fertiliser sectors are likely to avoid using the commodity and switch to alternate fuels and feedstocks, it is understood.

From the lows of $1.85/mBtu recorded in May 2020, the prises of LNG increased to $7.3/mBtu in November end. However, in the second week of January, Asian spot LNG rates rose to an all-time high $32.5/mBtu as severe winter in Northeast Asia raised demand amid outages at several liquefaction plants, transit delays for US cargoes at the Panama Canal and LNG carrier shortage curbing supply.

Even as overall demand of natural gas fell 5 per cent annually to 45,211 million metric standard cubic metre (mmscm) amid Coronavirus disruptions in the April-December period, LNG imports rose marginally up 0.7 per cent to 24,753 mmscm in the same period.

The value of LNG imports, however, dropped 28 per cent year-on-year to $5.1 billion as the average rate of spot LNG in April-December was only $4.5/million British thermal unit (mBtu) which is half the price of long term LNG.

“The current high spot LNG prices will lead to a rethink by several buyers in committing for new long-term firm LNG as against increasing their spot market exposure,” said Prashant Vasisht, vice-president of Icra. He expects the current level of high prices to ease with the onset of spring and summer and supply-side issues getting addressed.

Reaping the benefit of lower spot LNG rates around 2,600 megawatt (MW) of state-owned gas-based plants of Gujarat (Pipapav, Uran, Dhuvaran, Utran and Hazira units) increased their capacity utilisation levels two to three times from last year. Electricity production from Torrent Power’s 1,200 MW Dgen unit and NTPC’s 657 MW Gandhar gas plant, also in Gujarat, have more than doubled from last year.

Analysts at ICICI Securities expect spot LNG to trade at $16.2/mBtu in Q4, FY21, which is prohibitively high for power generation.