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Published on 25/03/2020 3:25:48 PM | Source: Reuters

Indian LNG importers invoke force majeure as gas demand slumps - sources

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By Nidhi Verma and Jessica Jaganathan

SINGAPORE/NEW DELHI - Indian liquefied natural gas (LNG) importers have issued force majeure notices to suppliers as domestic gas demand and port operations are hit by a nationwide lockdown to curb the spread of coronavirus, industry sources told Reuters.

Any reduction in purchases by India, Asia's third largest economy and the world's fourth-largest importer of the super-chilled fuel, is likely to further hit LNG prices, already cut by a drop in demand in China, where the virus emerged.

Spot prices in Asia fell to a record low in February but had been rising due to India's LNG purchases and a slow recovery in China as people returned to work. But with gas use down in Europe and now India, prices could reverse recent gains.

India imposed a sweeping, 21-day lockdown of its 1.3 billion residents on Wednesday, and is only allowing the supply of essential commodities. Several industries shut operations and some ports in the country declared force majeure.

This is spilling into the LNG market, several of the sources said.

India's top gas importer Petronet LNG served a force majeure notice on Qatargas and is seeking delayed delivery of cargoes, two sources said.

Another major importer, gas utility GAIL (India), has served a similar notice to some suppliers and is sending notices to the remaining clients, a company source said.

"Gas demand has reduced drastically and it is likely to go down further," the source said.

"Only fertiliser, power and refineries are running at parcel loads. Other local buyers have already issued force majeure so where should we sell LNG?"

India's Gujarat State Petroleum Corp (GSPC) has also issued force majeure notices to its LNG suppliers and has cancelled a buy tender for 11 cargoes, two sources said.

"Performance under the contract with sellers will be delayed due to lockdown ... most of our customers have already sent force majeure to us. Industries like chemical, textile and ceramics that do not qualify under category of essential commodities are closing," a source at GSPC said.

GAIL, GSPC, Petronet and Qatargas did not respond to Reuters' requests for comments.

"India had been the saving grace for the spot LNG market over the past month, buying the fuel when it was cheap," said Ira Joseph, head of global gas and power analytics at S&P Global Platts. The force majeures take "the most aggressive, price-sensitive buyer out of the market," he added.

 

DEMAND SLUMP

The current lockdown will limit India's gas demand growth as industrial activity will slow down significantly for the next 20 days, said Poorna Rajendran, consultant with FGE.

"The bulk of India's LNG imports are consumed by the industrial and commercial sectors," he said.

"Depending on the LNG terminals' ability to continue receiving operations, we expect anywhere from 1 to 2 million tonnes of LNG demand to be knocked off in India as a result of this lockdown."

India's daily gas send-out to domestic customers has dropped significantly, which has in turn caused LNG storage tanks to fill to the brim, with buyers unable to accept any more cargoes, another source said.

Falling local demand could curb the gas output of Oil and Natural Gas Corp (ONGC), India's top oil and gas producer, its Chairman Shashi Shanker told Reuters.

"As of now there is no impact on the production of oil and gas, but in the coming days gas production might get affected because of less off-take in view of the decrease in domestic demand," he said.

($1 = 76.3690 Indian rupees)

 

(Additional reporting by Rania El Gamal in Dubai; writing by Nina Chestney; editing by Louise Heavens and Richard Pullin)