Global financial crisis will bring cheaper LNG to India

Vol 12, PW 12 (30 Oct 08) People & Policy

Lower LNG demand from the US, Japan and South Korea combined with new supplies will bring turmoil to the spot market price structure and benefit Indian buyers, according to industry watchers.

PETROWATCH learns Indian LNG importers have been furiously tapping their pocket calculators and estimate that if crude oil falls to $50/barrel, long-term LNG could be available for $5/mmbtu and short-term at around $8/mmbtu (both FOB), compared to rates as high as $22/mmbtu offered by Shell in one recent spot LNG tender. “The whole global gas market is going through turmoil,â€‌ reports an Indian LNG buyer.

“Consultants tell us that for the first time in four years things have changed so much that it won’t be a sellers market when things settle down.â€‌ By the end of 2009, an additional 90 cargoes of LNG will enter the market every month from new liquefaction trains in Nigeria, Yemen, Qatar, Sakhalin, Tanguuh (Indonesia) and the North West Shelf (Australia).

Each cargo will be around 140,000 cubic metres. “These cargoes will be looking for customers,â€‌ adds our Indian buyer.

“This surplus will remain until at least the end of 2010.â€‌ As a result, Indian firms are likely to steer clear of long-term contracts for the next three months to benefit from the expected fall in prices, sparked by global recession fears and sharp falls in crude prices from record highs of around $150/barrel reached in July to around $65/barrel today.

Talk from Middle Eastern oil and gas producers is that crude prices could drop to around $50/barrel by December and stay flat for two years. Major buyers in Japan and South Korea, on long-term contracts linked to the JCC (â€کJapanese Crude Cocktail’) also expect prices to fall.

“These buyers have asked suppliers to renegotiate contracts,â€‌ says an observer. “Long-term LNG contracts for 25 years are linked to the JCC so there will be downward pressure on gas prices.

No economy can absorb spot LNG prices of $20-$25/mmbtu - not even the Japanese and South Korean economies.â€‌