Global LNG Supply Glut Could Boost Indian Players' Profitability
With competitive pricing, Indian LNG companies could penetrate new markets and increase their customer base.
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India could benefit as global liquified natural gas markets are set to see large capacity additions between 2024 and 2028. About 193 million metric tonnes of LNG production and liquefaction capacity is slated to be added over next four years, according to ICRA Research.
This could create a global supply glut, which will help keep LNG prices in check, after a volatile pricing period in 2022-2023.
As an importer of the gas, India could benefit given rising demand. Indian LNG terminal operators could also see a boost in profitability.
Global Supply Additions
The expected LNG capacity addition over the next four years is equivalent to 41% of the current global LNG production capacity, said Girishkumar Kadam, senior vice president and group head, corporate ratings at ICRA.
As per the Institute for Energy Economics and Financial Analysis, the global LNG supply or liquefication capacity, as of April 2023, stood at 478.5 million tonnes per annum. This capacity is set to grow to around 660 million tonnes per annum, said ICRA Research. The capacity additions are majorly going to come on behalf of countries like US, Qatar, Africa and others.
Impact On LNG Pricing
Global LNG price has seen a volatile run since March 2021, due to price shocks. Prices spiked significantly between March 2021 and September 2022 on multiple factors.
In 2021, aggressive LNG imports by China, weak renewable generation, and low inventory drove prices up. Supply disruption driven by the Russia- Ukraine conflict in 2022 added to the price surge.
It was only during September 2022, when prices started moderating. Prices in 2023 stayed low due to modest demand growth in the European Union and going forward, developments and capacity additions in West Asia are expected to be key drivers of LNG prices.
As per the LNG Japan/Korea Marker, which is the Northeast Asian spot price index for the gas, spot prices currently stand at 14 million metric British thermal units.
Benefit To India
India is a major importer of LNG due to the high domestic demand for natural gas. Thus lower and stable global LNG prices are a key positive for the country.
India's total LNG imports in April-June 2024 stood at 9.3 million metric tonnes, as per the Petroleum Planning & Analysis Cell. These imports are worth Rs 41,111 crore.
Domestic LNG Demand
ICRA Research expects domestic gas consumption to grow 6-8% year-on-year in fiscal 2025. Domestic reliance on LNG is expected to be high in the long term, mainly driven by the city gas distribution sector and the industrial segment, according to ICRA.
"The demand from the city gas distribution sector is underpinned by the CNG segment, which remains robust, owing to the strong economic advantage over alternate fuels, following the strong uptick in CNG vehicle sales in the last couple of years," said Kadam.
He expects the share of LNG in India's gas mix to increase from 48% in fiscal 2024 to 50% in the current financial year. Since India's domestic gas production is expected to start moderating from fiscal 2028, the country's reliance on LNG would further rise as India looks to increase the share of natural gas in the energy mix, he said.
Companies That Benefit
Indian companies operating LNG terminals stand to benefit from higher LNG imports due to lower prices. These include Petronet LNG Ltd., GAIL (India) Ltd., Adani Total Gas Ltd., Hindustan Petroleum Corp. and Indian Oil Corp.
Lower procurement costs directly contribute to higher profit margins for these companies. Lower LNG costs can also enable these companies to offer more competitive prices to their customers, whether they are households, industries, or power plants. This competitive pricing can help the companies penetrate new markets and increase their customer base.
Furthermore, India's LNG terminals are also performing better due to higher LNG import activities.
Petronet LNG's Dahej terminal witnessed a throughput growth of 13% sequentially in the first quarter of fiscal 2025. The terminal operated at a 109% capacity, which was a significant increase from the previous quarter. The company's Kochi terminal is currently operating at 20-25% capacity utilisation. But as the terminal's connection to the National Gas Grid gets completed by March 2025, the utilisation rate is expected to increase to 50-60%, as per the company.
As per data from the oil ministry, GAIL India's Dabhol terminal saw utilisation grow to 43% in fiscal 2024, from 39% in the previous year. Indian Oil's Encncore terminal's utilisation's grew from 18% to 13% previously, while Adani Total Gas' newly developed terminal in Dhamra, Odisha was functional at 27% during the first year.
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