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India demand surge overtakes LNG otherwise meant for Europe

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LONDON (Bloomberg) — India’s burgeoning demand for liquefied natural gas is dictating how many tankers make it to Europe, the world’s dumping ground for the fuel.

LNG imports to India jumped 43% in May from a year earlier, a contrast to western Europe where shipments have stagnated over the past three months. The world’s second-most populous nation is expected to double its LNG intake over the next four years, according to energy consultants Wood Mackenzie Ltd.

India overtook South Korea as the second-biggest buyer of spot and short-term LNG cargoes after prices crashed about 65% in almost two years, spurring demand for the cleaner fuel from fertilizer producers to power plants. For a supplier, having a closer market helps. It takes three days to ship LNG to western India from Qatar, the biggest producer of the fuel, compared with two weeks to get it to the UK, where prices are lower.

“India needs to be full before you start getting LNG imports in Europe going up,” Noel Tomnay, V.P. of global gas and LNG research at Wood Mackenzie, said in an interview in London. “We haven’t seen a significant uptick in European LNG imports yet. What we have seen is a significant uptick in India.”

The nation gets the fuel from Qatar at about $5/MMbtu, according to Petronet LNG Ltd., India’s biggest importer. That compares with $4.37 on average at Britain’s National Balancing Point trading hub in the second quarter, data from the ICE Futures Europe exchange in London show.

“The NBP is below the western Indian market price, and that should gravitate the spot cargoes toward India,” Prabhat Singh, the CEO of Petronet, said in an interview in New Delhi on June 30. “India is the place for world LNG to come if we handle the market well.”

Import surge

India’s imports of cargoes under contracts with duration of four years or less rose 45% to 9.7 MMt in 2015, according to the International Group of LNG Importers. The country imported 14.6 MMt of LNG last year, little changed from a year earlier, according to the group.

In May, the nation purchased a total of 2.08 Bcm of LNG, or 1.57 MMt, according to provisional data from the Oil Ministry’s Petroleum Planning & Analysis Cell. That compares with 3 Bcm imported into western Europe, a figure that’s slated to fall to 1.25 Bcm in June, according to consultants Energy Aspects Ltd.

Western Europe is poised to take a bigger share of LNG imports “over the coming quarters” thanks to the region’s liquid trading hubs capable of absorbing excess LNG from the global markets, according to Fitch Ratings Ltd.’s BMI Research unit.

Global supply is set to soar from the second half of this year as plants from the U.S. to Australia and Angola increaseproduction, pressuring prices, BMI said in a June 30 research note.

Stretched infrastructure

Increased deliveries have stretched India’s existing infrastructure. The Dahej terminal this year is running at an estimated 111% of its designed nameplate capacity and will be operating at 120% over the next six months, according to Petronet, which operates the facility. The company plans to complete an expansion of the terminal by September.

India’s LNG price is forecast to fall to $4.8/MMbtu on average this year and $4.6 in 2017, down from $7.5 last year, according to Energy Aspects.

“We have seen demand elasticity in India and it’s starting to stretch regas capacity,” said WoodMac’s Tomnay. “It is interesting to see how tested India will be as Asia’s natural sink.”

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