Indian LNG buyers may shy from instant long-term deals on hopes of price dip

Expectations of softening LNG prices seem to be the overarching consideration for price-sensitive Indian buyers in the near term as they weigh their willingness to ink long-term supply agreements that span 10 years, while acknowledging such deals are still indispensable for energy security and scaling supplies, industry sources told S&P Global Commodity Insights.

"Right now, the general consensus is that ideally 70%-80% should be long term while the remainder should be floating," an industry source based in India said, who expects more deals to flood the market if prices stayed rangebound or weakened further.

India, the world's fourth-largest LNG importer, has already secured about 12 million mt/year of LNG contracts last year to quench its energy needs and ensure stable availability as the Russia-Ukraine war persists and the geopolitical situation in the Middle East remains volatile.

"India is sufficiently supplied until 2028, and the need for additional LNG imports accelerates only thereafter, coinciding with the global supply ramp-up, which is expected to keep spot prices low," Akshay Modi, senior analyst South Asia Natural Gas, LNG, and Hydrogen at S&P Global, said.

This comes as a wave of supply is set to emanate from Qatar and the US, with President Joe Biden's move to pause new exports of LNG from the US offering limited support to prices on an adequate pipeline of future supplies, according to sources.

The surge in India's LNG imports is expected mostly toward the latter part of the decade as India inches closer to 2030, when it is targeting for natural gas to occupy a 15% share in the country's overall energy mix. According to industry sources, the share presently hovers in the 6%-6.5% range.

At least two sources noted that to meet the 15% target, India will need over 90 million mt/year of LNG, adding that additional demand could also get triggered from the power sector if LNG prices dropped to the $6-$7/MMBtu levels. In 2023, India's LNG imports stood around 22.56 million mt, according to S&P Global data.

Meanwhile, India's growth prospects, imploding demand from the city gas distribution and fertilizer sectors and increasing regasification capacity will also keep buyers interested in sealing long-term deals, if prices dropped further, sources said.

Embracing lower prices

"Global LNG prices could continue to soften through the end of the decade as new supply is ramped up," Ross Wyeno, Global LNG lead, at S&P Global said. However, recent history suggests there is considerable risk to foregoing long-term contracts, especially during periods of severe supply and demand shocks, he cautioned.

Analysts at S&P Global expect the Platts JKM prices to average around $10/MMBtu in 2024, around a 40% decline year on year. Platts, part of S&P Global, assessed the May JKM at $9.523/MMBtu March 27, down 14.5 cents/MMBtu day on day.

Petronet LNG's latest deal with QatarEnergy announced in February was heard to have been priced around a 12% slope to crude oil for deliveries across India, according to S&P Global.

"I think that 12% slope, which translated to around $8.50/MMBtu, was a balanced price at the time," another industry source said. However, with a further fall in prices, the market will see greater price stability, giving a more level playing field to local industry players to compete, he said.

An India-based importer said it was prudent to wait before signing any firm long-term contracts now because supply fundamentals were set to weigh on both term and spot prices. If Qatar and the UAE were to sell all their volumes, they will have to offer lower slopes or sell in the spot, pressuring prices, he said. "That is great for buyers."

A source in the Middle East echoed a similar sentiment. With more supply coming in, the slopes that will be negotiated will be lower, he said.

Meanwhile, the India-based importer also noted that US contracts signed are still mostly on an FOB basis to traders or portfolio companies. "Unless there is an end-user, I would consider them unsold, and they have to offer better pricing to buyers," he added.

Changing dynamics

A second India-based importer said that encouraged by the Deepak Fertilisers and Petrochemicals-Equinor deal in January, second-tier Indian gas buyers may procure LNG volumes on their own rather than through aggregators when current contracts expire later this decade.

Market participants said that capacity booking for pipelines and terminals and readiness to market volumes when captive usage falls for some companies would be key requirements for this to happen.

S&P Global had reported in February that the Deepak Fertilisers deal was likely priced around 121% of the Henry Hub price plus a $4.40/MMBtu constant.

HH looks attractive from the shipping and business optimization point of view, an industry source in India noted.

Meanwhile, some sources also said that Indian LNG buyers could prefer inking deals with portfolio companies which can offer flexibility that producers do not allow as suppliers ask for the same price linkages. Portfolio companies can give a percentage based on HH, JKM or Brent depending on the buyers' preference, making it desirable, they added.