India’s LNG buyers shrug off longer Covid-19 lockdown

The lockdown will be in place until 17 May in at least 130 areas or so-called red zones, including major urban areas such as Mumbai and Delhi, with a high incidence of cases. But the government has eased restrictions in some areas, as part of an effort to encourage a restart of economic activity that has been largely suspended since the start of the lockdown on 25 March.

Trains, planes and buses carrying passengers will continue to be prohibited. Much of the country's economic activity is concentrated in or dependent on areas hit by the coronavirus, so any relaxations in other areas may not have a major impact on economic activity or fuel demand.

The lockdown extension did not stop state-controlled refiner Bharat Petroleum (BPCL) from reissuing a tender to secure a cargo for delivery on 25 May to the 17.5mn t/yr Dahej LNG receiving terminal in Gujarat. The firm had sought a cargo for the same delivery period a week earlier but failed to award it. The reissued tender closed today but it is uncertain if BPCL has awarded the tender.

Fellow state-controlled refiner IOC is also expected to issue a tender this week to buy a cargo for delivery on 1 June to Dahej. Deliveries to Dahej continue, with the terminal operating at 50-55pc of capacity, officials at state-run firms said last week.

Operations at BPCL and IOC have not stopped since the lockdown was imposed, allowing them to import LNG even though their operating rates have dropped by around 30pc from pre-lockdown levels. Spot purchases of cargoes at unprecedented low levels will help to bring down their average import costs. These firms buy most of their LNG on an oil-linked term basis from Qatar and Australia's 15.6mn t/yr Gorgon LNG export facility, with prices indexed to crude at around 12.5pc-13.5pc with a lag of around three months. This would cost $6.37-6.88/mn Btu for a term delivery in June. Argus assessed prices for spot LNG deliveries to India at $1.63/mn Btu and $1.80/mn Btu for first- and second-half June respectively on 4 May.

Private-sector refiner Reliance Industries is the only Indian LNG importer to have bought any LNG cargoes during the lockdown. It bought two cargoes last month, one for delivery over 8-11 May and the other to be delivered in mid-June.

Other firms are less optimistic of their LNG demand picking up soon.

Manufacturing activity is starting to increase gradually at a steel manufacturing facility, where its plants are mostly off line or operating at reduced capacity. But an official at the firm said that industrial activity is still meant to be suspended until the lockdown is lifted and it will take some time to revive its gas demand. It has no plans to buy spot LNG, with any purchases dependent upon how quickly production can increase.

A Gujarat-based textile manufacturer expects its demand for regasified LNG may only pick up in six months as it expects demand from its customers, including spinners, to remain subdued. The firm's plants are currently shut.

But the significant fall in spot LNG prices to all-time low levels may present a potential boost for demand in India. The textile firm is considering switching more of its feedstock requirements to gas from coal, especially if spot prices hover around current levels. Regasified LNG accounts for a small portion of its total feedstock consumption, an official said without providing more details. The firm is considering increasing that share if LNG prices hover around current levels.

Other Indian firms, including those in the power sector, may have already started the coal-to-gas switch earlier this year, accounting for India's firm spot LNG demand. Indian buyers in this year's first quarter bought around 73 cargoes in total.

Argus assessed prices for deliveries in the front half month of first-half June to India at $1.63/mn Btu today. The front half month price was at $5.24/mn Btu on 2 January.

By Camille Klass