The recent price increase of term-liquefied natural gas (LNG) owing to an increase in crude and spot LNG prices on account of higher purchases from China, has resulted in an overall increase in the LNG prices in India, believes India Ratings and Research (Ind-Ra). The agency believes the increase in the spot natural gas prices is not a temporary phenomenon, but more structural in nature. China, particularly in relation to its drive towards a cleaner environment, has come down heavily on coal gasifiers and liquid fuel users. Moreover, the recent rise in the LNG prices was driven by colder than expected winter, leading to higher demand.
Although LNG prices may not sustain at the existing trading levels (USD10/mmbtu-USD11/mmbtu), they are unlikely to fall to USD4/mmbtu-USD5/mmbtu, witnessed in 1HFY17. Ind-Ra believes there is also a significant upcoming capacity on the liquefaction terminals globally. The global liquefaction capacity is slated to increase by about 35% over FY17-FY22 with an incremental capacity of 116.6mtpa from 336.1mtpa in 2016.
|Region-wise Nominal Liquefaction Capacity|
|Region||2010 (in MTPA)||2016 (in MTPA)||2022 (anticipated)||% growth 2010 – 2016 (actual)||% growth 2016 – 2022 (anticipated)|
|The former Soviet Union||10.8||10.8||27.3||0||153|
|Note: Liquefaction capacity refers to existing and under construction projects
Source: IHS Markit, International Gas Union, and Ind-Ra
During 2016, the global LNG trade was 258mt. Given the increase in Chinese demand, the overall LNG trade volumes are likely to grow significantly over the coming years as witnessed in 2017, when demand from China surged 46.4% to 38.3mtpa. Even if the Chinese demand was to grow at 15%-20% annually, given the substitution of polluting fuels under-way, the markets could look more balanced by FY20 than projected.
This increased demand from China has resulted in a change in the global LNG market dynamics, which until last year was in a supply glut, given the large capacities coming on-stream. However, with the increasing Chinese demand, the market seems to be balancing much faster than expected, leading to the increase in prices.
For India News Updates Follow India Pages On Twitter
India Pages is live on the ‘DailyHunt’ App which has over 90 million downloads. India Pages is also live on the Reliance ‘JioXpressNews’ App. The App has over 10 million downloads.