India's LNG market softening due to supply shortages

India's Petronet LNG has advised the government not to rely on LNG to meet India's energy requirements in the short and medium term because of supply uncertainties.

Uchenna Izundu
International Editor

BARCELONA, Dec. 12 -- India's state-owned Petronet LNG Ltd. has advised the government not to rely on LNG to meet India's energy requirements in the short and medium term because of supply uncertainties, warned Amitova Sengupta, the company's director of finance.

"India is to be a soft LNG market, and a cautious approach from buyers is to be expected," he said at the CWC World LNG summit in Barcelona. As emerging economies, China and India have been heralded as major LNG importers that would fundamentally affect the markets.

But LNG buyers are finding it difficult to invest; suppliers are behind schedule in finishing projects and delivering supplies, Sengupta said. "Discussions with buyers change course," he told OGJ. "Sellers will start discussions with some, and there is no certainty about when the project will come [on stream]."

Sengupta described 2008 as being a "dampener" on LNG supplies. His comments underline the scarcity of LNG production as escalating costs and soaring global demand hit sellers. "Even on spot cargoes, suppliers said there was potential, [but] then they couldn't supply," Sengupta said. "We need them to say in 2009-10 that there will be supplies either from the Atlantic or Pacific."

Petronet LNG in November received its last cargo from Qatar under a short-term, 1 million tonne/year supply deal and has recently signed another 1 million tonne/year deal with an undisclosed supplier. Sengupta said those cargoes would begin in January.

Demand dropping
Sengupta said the global financial crisis was not a major factor in India, but the company believes that the country's gas demand could fall to 230 million cu m/day in 2011-12, down from the previously expected 280 million cu m/day.

Imported gas will be used for petrochemicals, refineries, and city gas but not for the fertilizer industry, as initially projected, because domestic gas supplies will meet that need.

The government offered 57 blocks under its latest licensing round and plans to sign 44 production-sharing contracts in January. India's 67 oil and gas discoveries since the round was launched have also impacted its LNG import plans. In addition, "The government is prioritizing nuclear power, and 2,660 Mw is under construction," Sengupta said.

Transnational pipeline gas from suppliers such as Iran also will be crucial for India, he added. The $7.4 billion pipeline would have a capacity of 22 billion cu m/year, but pricing is a thorny issue. Sengupta played down the dispute wherein Iran reportedly is seeking $8/MMbtu, while India would agree to $4/MMbtu. "The Iran pipeline should come over the long term," Sengupta said. "The Indian market has paid international prices, and so that is not the issue. Pakistan sitting in between is the problem, and Iran wants to deliver gas to the Pakistani border."

Although coal is a major component in India's energy mix, there are concerns about its environmental effects and the requirements needed for investment and technology. Coal also has low-efficiency energy rates, high maintenance costs, and rising prices.

Contact Uchenna Izundu at

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