LNG to be in short supply till 2010

There is little hope for India when it comes to tying up imported natural gas. While none of gas diplomacy seems to have delivered till now, a shortage situation is likely to continue till 2010.

?Given the tight supply situation in the global LNG market in the next five years, India?s LNG import options are limited to Qatar, Algeria and Russia,? says a paper by Crisil Research, a unit of the rating agency Crisil.

Global gas trade volumes witnessed strong growth in the past few years. Today, nearly 25% of the world?s gas trade is in the form of liquefied natural gas (LNG) with the balance being transported through pipelines.

It said LNG would contribute nearly 30% of the total gas demand in India by 2010-11 compared with only 11% in 2005-06.

Nearly 71 million tonne per annum of spare LNG contractable quantity is still available (37 million tonne per annum from Qatar, 14 mtpa from Algeria and 21 mtpa from Sakhalin). ?However, to source these supplies, India would have to compete with some very aggressive buyers in the region such as Japan, South Korea and China,? said Nagarajan Narasimhan, head, Crisil Research.

In the Indian market, the deficit situation is expected to continue even in 2010-11, despite a hefty increase in domestic supply from private and joint venture-owned fields. According to Nagarajan, ?The total deficit is expected to be around 20.3 million standard cubic metre per day (mmscmd) in 2010-11.?

While the demand in India is likely to grow at the rate of 14.7% annually during 2005-06 and 2010-11(P) to 206.8 mmscmd, supply would increase from 93.7 mmscmd to 186.5 mmscmd by 2010-11(P), a growth of 14.8%.

The power sector would continue to dominate the scene with a significant 45.7% contribution to the total demand as compared to the current 35.4%.

The regional trade imbalances will result in a higher contribution of LNG to gas consumed in the world by 2010, at around 12% as compared to the current 6%.

The paper also points out that the natural gas in the long run may not be benchmarked against alternative fuel source but have its own market unlike today where it is linked to crude oil prices.

Demand-supply mismatch in the global LNG market will continue even in 2010. Based on projects announced (excluding speculative capacities), Crisil Research estimates that supplies at 265 mtpa (assuming an 85% capacity utilisation level) would just be able to match the demand of 246 mtpa in 2010.

?LNG prices would reflect this tight supply situation. However, if some speculative projects see the light of day, they would have a significant impact on LNG pricing,? said Narasimhan.

Considering that there are limited supply capacities available in the world, the cost of LNG imports at the Indian shore will range between $5.0 and $5.5 per Mmbtu translating into delivered cost of $6.5-7.0 per MMbtu to Indian domestic consumers (after including the cost of regasification, transportation, taxes and marketing margin). This is nearly double the price at which Petronet LNG?s gas is being sold today.

Source: Daily News & Analysis, New Delhi, August 22, 2006
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