Traditionally, tenders are used for spot trades or for fulfilling seasonal demand
LNG buyers are making the best of a surge in gas supply. Most of the recent sale-purchase agreements (SPAs) with a term of over two years were done through the tender route, Petronet LNG Ltd highlighted in its annual report. Traditionally, tenders are used for spot trades or for fulfilling seasonal demand.
Citing a study by leading global consultancy firm Poten and Partners, Petronet points out that of all the SPAs having a term of over two years executed by buyers in 2017, approximately eight were done through the tender route. This method of LNG contracting accounted for 10% of the total volume of LNG sold under new contracts in 2017. Out of the eight SPAs, six had a term between three and five years and two were of 15 years each. All these tenders were issued by buyers only.
Interestingly, India and Pakistan are said to be driving the trend.
Though the average term for contracts executed via the buy tender route was slightly more than six years, they were all delivered ex-ship and had oil price linkages, the report added.
An analyst with a leading consulting firm said that it's a buyer's market at present, and therefore, they are trying to have the best price from across the sources available. "This simply means that the supply of LNG is increasing and it's a buyer's market overall."
The report mentions that LNG industry in India started on a sombre note in 2017; in January the imports declined by 14.7% from December 2016 due to the economic impact of demonetisation coupled with high spot prices during that period caused by peak winter heating demand. Spot prices during that period reached about $10 per million British thermal units.
This made term contract prices in India cheaper and Indian buyers put off buying spot LNG from the market. In 2016-2017 cumulative imports were higher than 2015-16 as there was a subsidy given by the government to gas-based power producers, lower LNG prices internationally and a 1 million metric tonne per annum (mmtpa) CFR contract with Qatar Gas and Petronet LNG Ltd, which led to increased imports under a long-term contract.
According to the government, gas demand in the country is at least double the current consumption level but is constrained due to lack of gas pipeline infrastructure.
India's current share of global energy consumption, according to the BP Statistical Review of World Energy2017, is 5.5% compared to 30% for China. Coal and oil form the biggest share of the country's energy basket, contributing heavily towards emissions.
With a view to controlling pollution, the government is targeting to more than double the share of natural gas in the energy mix to 15% by 2022, which will require a huge increase in imports of LNG and construction of more LNG terminals as domestic gas production is not expected to grow significantly.
India has four terminals to receive LNG and over the next seven years, there are plans to build another 10 terminals.
Petronet LNG Ltd, which was set up by the government in collaboration with Bharat Petroleum Corporation Ltd (BPCL), GAIL (India) Ltd, Indian Oil Corporation Ltd (IOC), Oil and Natural Gas Corporation Ltd, operates the country's first LNG receiving and regasification terminal at Dahej in Gujarat and another terminal at Kochi, Kerala. While the Dahej terminal has a nominal capacity of 15 mmtpa, the Kochi terminal has a capacity of 5 mmtpa.
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