Gas imports drop as K-G basin ups output

Gas supply from Reliance Industries Ltd’s (RIL’s) eastern offshore field, the Krishna-Godavari basin, and the current economic slowdown are spoiling the spot market show for liquefied natural gas (LNG) importers, say analysts and market players.

Prosad Dasgupta, managing director and CEO, Petronet LNG, the country’s biggest natural gas importer, says spot imports have not reflected the boost they should have got, given the sharp dip in prices compared with last year.

“Spot natural gas prices have crashed from last year’s high of $9-10 per mBtu to around $5. Still, imports are not growing. I see two reasons behind this, the commissioning of the K-G basin D-6 block and the economic slowdown,” said Dasgupta.

While Dasgupta did not mention the number of cargoes Petronet had imported so far, industry sources based in Gujarat sais the western coast used to receive around seven cargoes a month. This is down to around three now. “Considering the present economic situation and the fact that spot gas prices are down to $5 per mBtu, almost equal to Reliance’s KG basin gas, the demand has been affected,” said an official from Gujarat State Petronet (GSPL).

Spot LNG prices have fallen the world over due to two reasons — the economic slowdown in the West and new LNG capacities.

The Mukesh Ambani-led RIL began production last month from its Krishna-Godavari (K-G) basin field. It currently produces a little over 15 million metric standard cubic metres a day (mmscmd) of gas, which it supplies to fertiliser and power firms.

The company is selling natural gas from the field at $4.20 per mBtu, excluding delivery costs and taxes.

Gas production from the block will go up in phases. It would produce 80 mmscmd of gas before December, Petroleum Secretary RS Pandey had said earlier this month. RIL says it expects to touch 40 mmscmd in the April-June quarter.

“While long-term gas import agreements will continue, a dip in spot gas purchase contracts is likely in the near future as a result of supplies from the K-G Basin. The demand for spot gas will also be driven by the price economics,” said Rakesh Jain, general manager (Energy), Feedback Ventures. Many fertiliser plants used to source LNG from the spot market at $17-18 per mmbtu. These are now buying from the KG basin at less than half the price. While analysts say short-term demand has been affected, in the long term, LNG imports could see an increase. Last year, India imported between 6.5 and 7 million metric tonnes per annum (mmtpa) of LNG. This year it could go over 13 mmtpa, according to analysts.