India has ramped up purchases of liquefied natural gas from the spot market as importers rush to replace disrupted Middle Eastern supply and meet demand from fertilizer plants, power generators and households.
At least five state-run companies, including Indian Oil Corp. and Gujarat State Petroleum Corp., have issued purchase tenders or bought shipments for June and July delivery this week, according to traders. The buying will help meet requirements from fertilizer producers, which use gas as a feedstock and are ramping up output ahead of the planting season.
It’s a major turnaround for India, which had cut back LNG purchases in March and April as the the war in Iran sent prices of the super-chilled fuel higher. Now, India is moving to replace LNG shipments lost from Qatar and the United Arab Emirates, which together account for 57 per cent of its pre-war imports.
The surge in consumption is coming at a cost. Spot LNG prices have climbed to about $18 to $19 per million British thermal units, compared with roughly $13 per million Btu under long-term supply contracts.
India is now buying almost six LNG cargoes a month from the spot market for fertilizer production, compared with less than one cargo before the conflict, according to people familiar with the matter. Fertilizer plants had previously relied largely on long-term contracted supplies.
Natural gas is the primary feedstock for urea production, and demand typically peaks during June and July when farmers begin planting rice and other monsoon crops. As one of the world’s largest consumers of urea, India depends on steady gas supplies to support agricultural output and contain food inflation.
The buying spree also comes as hotter summer weather has boosted demand for gas-fired power generation, with electricity producers stepping up purchases. Large parts of the country have endured prolonged heat waves this year, driving electricity consumption to record levels during both daytime and nighttime hours.
Gas-fired generation has increased sharply in recent weeks. Output during the first week of June reached 651 million units, exceeding government targets, and compared with 383 million units during the same period in May, according to official data.
Demand for LNG is also being supported by the government’s push to expand the use of piped natural gas in homes as liquefied petroleum gas supplies tighten. India, the world’s second-largest LPG consumer, imports about 90 per cent of its requirements from the Middle East.
Since March, about 916,000 new household gas consumers have been connected and infrastructure has been built for another 305,000 connections, according to government data. India had about 17 million residential piped-gas customers as of March 31.
