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AHMEDABAD: On March 7 and 8, Reliance Industries Ltd and Hindustan Oil Exploration Company (HOEC) sold natural gas to companies like Gujarat State Petroleum Corp (GSPC) and GAIL in two separate auctions.
The price discovery in both these bids, around $22 per million British thermal unit (mBtu), is the highest ever in India for domestic natural gas supply, said two officials close to the development.
“Had it not been for the war between Russia and Ukraine, these deals would have been capped at $15 per mBtu or even lesser. RIL will supply gas from its coal bed methane fields while HOEC gas will be sourced from HOEC B-80 field,” said one of the two officials who is involved in the deal.
In a recent communication to city gas distribution (CGD) companies in the country, GAIL India said it will cut the gas supplies by 20% due to the prevailing scenario. A communication by GAIL to the CGD entities has been reviewed by Hindustan Times.
Earlier this week, Gujarat Gas, the largest CGD company in terms of volumes, wrote to ceramic companies in Morbi to put constrain on their consumption else they will have to pay for 20% of their total consumption at spot prices, said an official close to the development.
“Asian spot LNG prices jumped $3 per mmbtu (week on week) to $40.5 per mmbtu for Apr’22 delivery as they tracked the continued high European gas prices (to $50-60/mmbtu) as buyers move away from Russian gas/LNG in response to its invasion of Ukraine,” according to a JM Financial report dated March 7.
European gas price continues to be volatile at ~$61.9/mmbtu amidst ongoing geopolitical tensions between Russia and Ukraine posing supply side concerns, it said.
Morbi is the country’s largest industrial hub for consumption of natural gas, consuming about 6-7 million metric standard cubic per day (mmscmd). Presently there are about 900 ceramic units run on natural gas and the retail price in Morbi is around ₹60 per scm or about $21 per mBTu.
The soaring natural gas prices in the wake of war between Russia and Ukraine has put constraints in the supply with industries that are dependent on imported gas coming under pressure.
For companies like Gujarat Gas, high spot LNG prices could pose near term concerns given their dependency on spot LNG, according to the JM Financial report. It said that there could be an impact on Petronet LNG, the country’s largest natural gas importer, due to the high spot LNG prices.
“The CGD companies are facing 25% of shortfall in natural gas supplies in the last few days following the sudden uptick in international prices. The LNG imports to India has dropped 35% in recent times. From about 22 per mBtu two weeks ago, the international spot prices went up to USD 89 per mBtu following the geopolitical situation,” said an executive working with a leading CGD company. He spoke on conditions of anonymity.
Power Struggle
India consumption about $160 mscmd of natural gas of which 90 mscmd is through imports that largely consists of spot purchase and the remaining 70 mscmd is from domestic supply. The country’s dependence on Russia for sourcing gas is about 10-15% of the total imports, said Harsh Dole, energy analyst, IIFL Securities.
“The spot LNG prices had gone to $50 per mmbtu and cooled down to $22-24/mmbtu by mid/end February. The prices have climbed to $55 per mmbtu amid fears of supply disruptions. Back home, the administered price mechanism (APM) gas prices were revised to $2.9 per mBtu in October, up by 62%, reflecting the global LNG price trends. They are up for revision in April and given the current scenario it could go up to $6 per mBtu. This will further disrupt the country’s power sector and lead to a sharp price hike in CNG and domestic gas prices,” said Dole.
The government, according to APM, fixes the price of natural gas produced by domestic exploration and production firms like Oil and Natural Gas Corporation (ONGC) every six months.
The international spot gas prices which hit rock-bottom at about $2-2.5 per MBtu in the second half of 2020 amid coronavirus pandemic, leading to a revival of the country’s many idle gas-based power plants, are once again under pressure due to the rise in imported natural gas prices.
Gujarat, which imports 85% of the country’s natural gas through the three operational LNG terminals, houses about 7,700 MW of the total 24,000 MW power generated from gas-fired units in the country.
In October 21, the plant load factor of gas-based power plants in the country was 20.2% and this has come down to less than 12% presently, shows data on Central Electricity Authority website.
“In September 2020, gas-based power plants in Gujarat, many of which were earlier lying idle and facing viability issues, had seen a revival, operating at 50% capacity due to the low prices of spot LNG then. From the past one and half year they have again been under pressure and the recent hike in international prices could lead to issues of load shedding,” said a government official aware of the matter.
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