Import of spot LNG declines on lower naphtha prices

With the current slide in naphtha prices, import of spot Liquefied Natural Gas (LNG) at the country’s western coast at Hazira and Dahej terminals has reduced substantially.

While the Hazira terminal has not received any spot LNG cargo for the past six weeks, the Dahej terminal has received only two cargoes since the middle of November. Prior to the sharp fall in naphtha prices, these two terminals used to receive three spot LNG cargos every week, said three sources, including one Gujarat government official and two company officials.

“Gujarat State Petroleum Corporation, which sources one LNG cargo every week from Dahej and Hazira terminals for its users in the local market, has not bought LNG for a long time,” said a government official close to the development.

While Shell and Total are operators of the Hazira LNG terminal with a capacity of 2.5 million tonnes (mt) a year, Petronet LNG operates the Dahej terminal with a capacity of 5 mt per annum.

According to the state government official, two cargos were sent back from Gujarat’s port last month, as there was no space to unload the tankers.

“This happens only when you are not able to sell the LNG from the earlier cargo,” said a source close to the development.

However, an official spokesperson of Shell denied that any cargo has been diverted from Hazira. “While some customers may be shifting to naphtha, it’s only a temporary phenomenon and will not have any impact on the company’s balance sheet,” he added. Prosad Dasgupta, managing director and CEO of Petronet LNG, said they had imported two spot LNG cargos since mid-November.

According to industry experts, naphtha prices have fallen nearly 72 per cent from about $ 1,100 (Rs 52,690) per tonne to about $300 (Rs 14,370) per tonne in last six months.

Price of crude oil during the same period has fallen almost 70 per cent and is trading close to $45 a barrel after reaching a peak of $147 in July.

While current spot LNG prices are trading around $10 per million British thermal unit (mBtu), naphtha equivalent will cost around $7.04 per mBtu.

Just six weeks ago, spot LNG was available at around $19 per mBtu.

“With the petrochemical sector experiencing a downslide, naphtha is available in surplus in the market. This has lead to a steep fall in the prices of naphtha, which is used as a feedstock for the petrochemical sector,” said a Mumbai-based analyst.

Power and fertiliser sectors, on the other hand, are poised to gain as a result of the fall in naphtha prices, he added.

Essar Power, for instance, has already shifted to naphtha for its 550-Mw dual-feed power plant at Hazira. The company has imported about 30,000 tonnes of naphtha from a Gulf country last month. “The prices of naphtha is more than half that of spot LNG, so it makes sense for a dual-feed plant like ours to switch to naphtha,” an Essar official said.

Shriram Fertilisers and Chemicals have also been sourcing naphtha at a cheaper rate from the market. The company converted into a gas-based facility a year ago, but it still doesn’t have firm gas contracts with any player.

“We are thus using naphtha almost 100 per cent in our plants. At this rate, it makes sense at our cost of production will be lower,” said Chairman and Senior Managing Director Ajay Shriram. Cost of fuel comprises 75 per cent of the cost of production for the company, which produces 700 tonnes of ammonia and 1,200 tonnes of urea a day.

Industry players however, believe that LNG prices will be increase in the second quarter of 2009-10 and spot LNG would again become competitive.