Indian LNG importers issue force majeure notices as gas demand slumps

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 one of the top importers of the super-chilled fuel, are likely to further hit LNG prices, already battered by a drop in demand in China, where the virus emerged.

India imposed a sweeping lockdown of its 1.3 billion people on Wednesday for 21 days, and is only allowing the supply of essential commodities. The move prompted several industries to shut operations and some ports in the country to declare force majeure.

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

India's top gas importer Petronet LNG has served a force majeure notice on Qatargas and is seeking delayed delivery of cargoes, two sources said. "Gas demand has reduced drastically and it is likely to go down further," a source with gas utility GAIL (India) 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?" this source said, adding his firm had served force majeure notice to some suppliers and was in the process of sending notices to the remaining sellers.

Gujarat State Petroleum Corp (GSPC) has also issued force majeure notices to its LNG suppliers, 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," said a source at GSPC.

The 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, a second source said.

"Transport segment is already down 10% and retail gas is down to 10% of normal volumes, industrial output has been impacted," the source added.

"We may soon see cargoes meant for India being diverted to China, which is the complete opposite of what happened a month ago."

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

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.

Shanker said ONGC's capital expenditure (capex) could get affected as the lockdown has delayed the supply of overseas equipment and restricted travel by expats to perform jobs. ONGC has drawn up plans for capex of 325 billion rupees ($4.3 billion) in 2020/21.

Asia spot LNG prices had recently been on an uptrend due to a slow recovery in demand from China as people returned to work, but with gas demand hit in Europe and now India, they are expected to reverse gains, traders said.