West Asia crisis triggers severe LNG, LPG supply shock for Indian firms

LNG tenders fail, tankers stranded, storage at 30%; naphtha back in the mix

Four days after the US and Israel launched an attack on Iran, the chief executive of a business unit at a large conglomerate enquired about additional liquefied natural gas (LNG) at a western Indian port. The price quoted by a trader turned him away. At $30 per million British thermal units (mBtu), it was 3x what he had paid early last month, he told Business Standard, declining to be named.

 

State-run gas distributor GAIL (India) and Gujarat State Petroleum Corporation received offers of $25 per mBtu in a tender to import LNG cargoes for March delivery, but the bids were not awarded, UK market information provider Argus reported.

 

Gujarat Gas, which supplies the ceramic industrial cluster in Morbi, Gujarat, has cut daily gas volumes to customers by 50 per cent this month, CNBC reported.

 

Oil-marketing companies (OMCs) are advising industrial gas consumers to switch to liquid fuels such as naphtha and fuel oil instead of LNG, partly because of limited availability and partly because rates have doubled, making the fuel uneconomical, two senior gas traders at state-run refiners said.

 

Refineries operated by OMCs find it cheaper to burn naphtha, which costs about $10 per mBtu at current rates, the executives said. Naphtha is available for now, but the government has said the country holds only 25 days of crude oil stocks and 25 days of oil products, including strategic reserves. Unless the West Asian conflict eases soon, even liquid fuels could run short, hurting industry, they added.

 

The war in West Asia may last weeks or longer, US President Donald Trump said, while offering to extend insurance facilities and escort oil and LNG tankers through the Strait of Hormuz, the world’s most critical energy chokepoint. Tanker transits are down 88 per cent, and liquefied petroleum gas (LPG) transits 94 per cent.

 

“While the world has experienced numerous shipping disruptions in recent decades, nothing quite like this has occurred before,” said Anas Alhajji, a global energy expert, in a note. “Critically, the primary drivers of this crisis are not Iranian actions per se, but decisions by Western-led entities within the global financial and insurance system.” The region accounts for 37 per cent of naphtha, 32 per cent of global seaborne crude flows, 23 per cent of LPG, and 13 per cent of middle distillates.

 

Indian refiners are finding it costly and difficult to secure tankers for alternative supplies after daily rates for very large crude carriers rose tenfold to $200,000 a day from a year earlier, Gibson Shipbrokers said. There are 247 tankers stranded in the Arabian Gulf, accounting for 6 per cent of the global fleet, Kpler said in a note.

 

A senior executive at a leading state fertiliser producer in Gujarat told Business Standard that curtailments have begun at some units and, if LNG supplies do not resume within a week, production cuts will follow. Fertilisers account for 29 per cent of total gas consumption, and LNG makes up 87 per cent of their supplies, oil ministry data show.

 

In the past, urea makers operated on both naphtha and natural gas but have since shifted entirely to gas, leaving them exposed to supply disruptions, a gas supplier to fertiliser plants said.

 

Storage at nearly 20 tanks across India’s eight LNG import terminals — each with a capacity of 160,000–180,000 cubic metres — is at about 30 per cent. Any further drawdown without fresh arrivals could disrupt pumping operations in gas pipelines and risk a grid collapse, an industry executive said. The tanks together hold about 3.6 million cubic metres, a fraction of India’s annual demand of 71 billion cubic metres (bcm).

 

The government has limited room to raise allocations of the administered pricing mechanism gas, but can prioritise politically sensitive sectors such as city gas distribution, a senior refining executive said. Of the roughly 1.5 bcm available for allocation in January, about 70 per cent went to city gas utilities for vehicular compressed natural gas and household piped natural gas, with the rest allocated to fertilisers and some power plants.

 

A similar trend is visible in LPG markets, where international prices have jumped by more than half after West Asian suppliers — which met 89 per cent of India’s LPG needs last year — curtailed production.

 

The conflict, which has left Indian LNG consumers with barely five days of supplies and kitchens with only a few weeks of LPG stocks, has positioned the US as a key alternative supplier. Indian refiners are making enquiries to secure LPG as prices climb to two-year highs, industry sources said. The voyage to India via the Cape of Good Hope takes 45–50 days, as Iran-backed Houthi rebels have blocked access to the Suez Canal, a senior OMC executive said, adding that freight rates have risen by more than half.

 

Unlike other Asian buyers, where LPG is largely used in petrochemical facilities, India’s demand is driven mainly by residential consumption. Domestic production meets only 40 per cent of the total requirement.

 

“Should MEG [Middle East Gulf] supply disruptions materialise on a larger scale, India would likely be the first destination seeking prompt replacement barrels,” Vortexa analyst Anna Zhminko said in a note. “Such replacement would likely come from the US, particularly the US Gulf Coast.”

 

At least three very large gas carriers have signalled redeployment from MEG to the US, an early sign of shifting trade flows. However, Indian buyers may have to offer premium terms to secure cargoes from the US Gulf Coast in competition with other Asian buyers, she added. “Over the weekend, as conflict in the Middle East intensified, Argus Far East Index propane swaps rose to $751 per tonne at the Asia close on March 2 — a 21 per cent jump from Friday,” Zhminko said. Saudi contract prices for March were $545 per tonne for propane and $540 per tonne for butane, the blend used in Indian kitchens.

 

Roughly a quarter of India’s fertiliser imports transit the Strait of Hormuz, and producers rely on imported Gulf oil and natural gas to manufacture fertilisers, Alhajji said. “These disruptions are hitting just before India’s critical planting season. If agricultural output falls this year, India may end up importing more agricultural products from the US — an outcome long sought by Trump,” he added, referring to a key US demand in bilateral trade talks.