The CEO of India’s top gas importer said on Friday that hike in liquefied natural gas (LNG) prices is prompting buyers to secure longer-term contracts, possibly with a floor-and-ceiling price option, exorbitantly. To hedge against instability.
AK Singh, chief executive of Petronet LNG, told India Energy Forum by CERAWeek, an industry event, “Such volatility has never been seen in the history of LNG markets. We have seen the lowest and highest prices in the last one year.” .
Asia Spot LNG prices fell to a record low of $2 per million British thermal unit (mmBtu) in May last year after the coronavirus-induced lockdown dented demand for the gas.
Earlier this month, they hit a record high of $56 per mmBtu. Prices have since returned to around $30 per mmBtu, but have remained up nearly 500 per cent from last year.
“There is a ray of hope in every dark cloud and this (high price) situation is pushing people to contract longer than usual and that could be the best thing for the gas economy across the world,” he said. “
Low spot prices had hurt investments in gas production assets, disrupting supplies as the global economy recovered after the pandemic. Lower prices also encouraged buyers to take advantage of spot prices.
Global spot and short-term LNG contracts now account for more than 40 percent of total volumes, doubling in the past decade, partly due to Asian buyers’ hesitation to make long-term commitments amid energy transition uncertainties and rising supply liquidity. the result is. Valerie Chow, Head of Asia Gas and LNG Research at Wood Mackenzie.
Petronet says the price of long-term LNG is currently $11-$12/million British thermal unit compared to spot prices of around $40/mmBtu.
Singh said the recent volatility in gas prices is prompting buyers to link long-term gas contracts to a mix of crude oil and gas indices. Singh said that fixing price floor and range in long-term contracts will protect both buyers and sellers from volatility.
The demand for gas in India is set to rise as Prime Minister Narendra Modi has set a target to increase the share of gas in India’s energy mix from 6.2 per cent to 15 per cent by 2030.
Meeting that target requires construction of new LNG terminals in the country of 70-75 million tonnes per annum (MTPA) capacity, Singh said, as imports of the super-cooled gas could increase to 120 MTPA from the current 26 MTPA. .
India’s current LNG import capacity is 42 MTPA. He said that new terminals with a capacity of 19 MTPA are under construction while plants with a total capacity of 9-10 MTPA are in the design stage.