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Plunge in DES West India LNG price to historic lows spurs spot buying activity
A more than 40% year-on-year drop in DES West India spot LNG prices to record lows has spurred Indian buyers to issue a flurry of spot tenders since the start of the new year. The DES West India price was assessed at $3.725/MMBtu Wednesday, the lowest since S&P Global Platts started publishing DES West India assessments in January 2010.
Increased production from the US, Russia and Australia coupled with weakening demand growth from North Asia to cause a global supply glut Over the first three weeks of 2020, Indian LNG buyers issued tenders for 15 cargoes to be delivered over the first quarter. Additionally, Indian Oil Corp. issued a tender seeking six cargoes to be delivered over April-December.
In comparison to the same period last year, Indian LNG buyers had issued four spot tenders, and Torrent Power had issued a strip of five cargoes to be delivered over February-December 2019.
While some traders thought of the abundance of tenders in January so far as increased demand from India, others suggested it was regular demand with several tenders being issued at the same time for Q1 delivery.“Some did not award their tenders earlier and issued it later after the holidays, and others were looking for regular demand in Q1,” an Indian end-user said. Moreover, three tenders were issued in the spot market for prompt January delivery — one seeking a commissioning cargo for the Mundra LNG terminal, and another two due to the unavailability of a Petronet LNG term vessel from Qatar to India.
India’s Gujarat State Petroleum Corporation had issued the tender seeking the commissioning cargo for the Mundra terminal for H2 January delivery. The tender was awarded in the mid-$5s/MMBtu, market sources said. The Mundra LNG terminal received its commissioning cargo Wednesday, aboard the 210,000 cu m Q-Flex LNG Vessel Murwab, according to Platts vessel tracking software cFlow.
Meanwhile, the unavailability of the Petronet LNG term vessel from Qatar to India prompted GAIL and IOC to issue tenders in the spot market for January delivery, according to market sources, but this could not be confirmed with Petronet.
During the first week of January, GAIL issued a tender for a cargo to be delivered by January 10 DES Dabhol. Due to the very prompt nature of the tender, GAIL awarded the tender in the low $6s/MMBtu — a premium to prevailing spot market prices, sources said. The tender closed January 6, and the DES West India assessment on the day was at $4.888/MMBtu.
Similarly, IOC issued a tender early January for a cargo to be delivered end-January. The tender was awarded at $5.50-$5.60/MMBtu, sources said. The tender closed January 8, and the DES West India assessment on the day was at $4.913/MMBtu.
FURTHER DOWNSIDE TO SPOT LNG PRICES
Spot LNG prices in India could face further downward pressure as we roll forward into the summer months, away from the global peak winter demand season. The benchmark for spot LNG prices in North Asia, JKM, could possibly drop to historic lows this year below $3/MMBtu, with rising supply outpacing weaker demand, Platts Analytics reported in their weekly LNG price forecast last week.
Further down the curve, the JKM derivative for Summer 2020 was assessed at $3.975/MMBtu, with April being the lowest at $3.745/MMBtu on Wednesday. The lowest price among the series of tenders issued in January was the IOC tender for February 24-29 delivery DES Dahej, sources said. The tender closed January 15, and was awarded at $3.95/MMBtu, sources added.
“While buyers may look to take advantage of lower spot prices in India, demand creation this year would be restrained by infrastructure constraints and possibly lower fuel oil prices,” an Indian end-user said.
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