The continued high prices of spot liquefied natural gas (LNG) are a significant concern for Indian gas companies, as they could affect domestic demand and impact the volumes and margins of city gas distribution (CGD) firms, according to a report by JM Financial.
The report points out that Gujarat Gas (GGas) faces a particularly high risk, with 20-30% of its purchases coming from the spot LNG market. It stated, “Sustained high spot LNG prices are a major concern for all gas companies in India as they could negatively affect domestic LNG demand, as well as the volume and margins of CGD companies.”
The report also highlighted that spot LNG prices are currently trading at around 18% of Brent crude prices, which is significantly higher than the historical average of 12% prior to the Russia-Ukraine conflict. This ongoing price surge presents a challenge for Indian gas firms, especially those reliant on spot LNG to meet supply needs.
Global oil and gas companies anticipate that high spot LNG prices could persist into 2025, driven by tight market conditions caused by supply disruptions and increased demand from key markets. Despite a 19% year-on-year decline in Europe’s LNG demand to 93 million metric tons (mmt) in 2024, European LNG imports have surged in recent months.
The report explained that the decline in demand was mainly due to slower industrial growth, less gas-fired power generation, and heightened competition for LNG volumes from other regions. However, cold winter temperatures, the complete cessation of Russian gas supplies, and dwindling inventories have contributed to a rise in European LNG imports recently.
Looking forward, global LNG supply will need to grow by 230 million metric tons per year over the next decade to meet the increasing demand. One potential factor that could help ease the market imbalance is the restoration of Russian gas supplies to Europe, which could reduce price pressures and improve availability.
As high spot LNG prices persist, Indian gas companies, especially CGD firms dependent on imported LNG to meet demand, will need to navigate rising costs and potential demand fluctuations. The industry will closely monitor global developments and possible supply increases to mitigate the risks posed by price volatility.
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