INTERVIEW: LNG markets move to 'gradual rebalancing' after unmatched volatility: Petronet CEO

After witnessing unprecedented volatile gas prices in the last few years, natural gas markets are moving towards a "gradual rebalancing", with spot LNG prices set to hover around $15-$17/MMBtu on an average in the October-December period, Petronet LNG Managing Director and CEO Akshay Kumar Singh said Sept. 6.

"Europe has achieved its target of 90% storage capacity ahead of winter...Unless there is an extreme winter in Europe and concurrent LNG supply disruptions, we expect prices to be comparable to the winter prices witnessed in the years before the volatility seen in the last two years," Singh told S&P Global Commodity Insights in an interview at Gastech 2023.

Spot LNG prices depend on global phenomenon, with fears of supply-side disruptions or consumer-side disturbances holding the potential to impact prices, Singh said.

So, the threat of strikes at key LNG facilities in Australia was also no exception when it came to the price impact, Singh noted.

"However, we hope that the situation there will resolve sooner than later, and things will stabilize," Singh said.

Fears of industrial action at Woodside Energy's North West Shelf as well as Chevron's Gorgon and Wheatstone facilities located in Australia, in recent days had already stoked concerns over tightening supplies and propped up international LNG prices. On Aug. 24, Australia's Offshore Alliance said it had already reached an in-principle agreement with Woodside to cover its platforms that feed gas to its NWS LNG Project. However, negotiations with Chevron are still ongoing.

Asian spot LNG prices surged over 25% between Aug. 1-17, with the Platts JKM assessed at $14.426/MMBtu on Aug. 17, S&P Global data showed.

Prices have eased since then amid expectations of limited supply risks and hopes of a resolution to avert strikes at Chevron's facilities. The Platts JKM for October was assessed at $12.935/MMBtu Sept. 6 while the LNG West India marker was assessed by Platts, part of S&P Global, at $12.55/MMBtu on the same day.

LNG vs other fuels

Weak LNG prices bode well for price-sensitive markets such as India, where buyers compare LNG prices to those of existing liquid fuels to determine their import needs, Singh said, noting that the price spike last year had led to considerable demand destruction.

India has long term LNG contracts of almost 20 million mt/year.

"Last year, consumption was in the range of 20 million mt/year. However, two years ago, this consumption was in the range of 26 million mt/year," Singh noted.

In the last few months however, LNG consumption has "improved quite a lot" because LNG prices have been comparable to those of existing liquid fuels and are also in line with long term gas prices, Singh shared.

Improving LNG demand is also getting reflected in Petronet's utilization of its flagship Dahej terminal where capacity utilization in Q1 FY 2023-2024 jumped almost 25% on the year, Singh said, adding that capacity utilization at Dahej has hovered at around 90%-95% so far this month.

Softer LNG prices would attract more spot cargoes to the country, helping Petronet achieve better utilization rate at the terminal, Singh said.

The Dahej terminal, one of the world's busiest in terms of cargo handling, has a nameplate capacity of 17.5 million mt/year.

Singh noted that the company was on track to expand the capacity of this terminal to 22.5 million mt/year by December 2024.

Contracting activity

Petronet's existing long-term LNG contract with Qatar expires in 2028, although the company has about until the end of this year to renegotiate. Of this 8.5 million mt contract, 7.5 million mt /year is directly with Petronet LNG and 1 million mt is assigned to its offtakers -- mainly the promoter company, Singh said.

"We are looking for an 8.5 million mt/year extension of the contract beyond 2028," Singh noted.

In addition to Qatar, Petronet was also talking to suppliers elsewhere, including those in the US, to meet its contractual import requirements, Singh said. "We are in serious engagement with suppliers and are quite positive."

People want stable and affordable prices for sustaining their business. The nature of LNG contracts pivoting mostly to a duration of 10 years plus as "consuming nations feel more comfort in the long-term than sustaining on the spot, which used to be the practice earlier," Singh added.

"While we also prefer long-term, there should be a mix of long term and short term, with perhaps, 75%-80% on long term and 20%-25% as spot requirement, so that you don't miss the opportunity when prices are more affordable and on the lower side," Singh shared.

In terms of indexation, Singh noted that there was no such guarantee that a particular indexation would always be better in the long term. So, all the consuming nations usually mix a portfolio of different indexes to mitigate unforeseen circumstances for long-term contracts, Singh said. "India is no exception. We have a Henry Hub-based model and we have crude linked contracts."