A rush to sign LNG deals thanks to Modi's gas push

A move to protect India's liquefied natural gas buyers from price surges is being sought by the country's buyers, supporting the government's aims to boost its use.

Fuel importers are increasing their efforts to lock in prices, according to traders and executives. Petronet LNG Ltd., GAIL India Ltd., and Indian Oil Corp. are in negotiations with suppliers in the US, Qatar, and the UAE for 20-year deals. Bloomberg NEF contract data shows a reversal for the nation, which hasn't signed a long-term deal since 2021.

The move should help reduce their exposure to the volatile spot market - where prices surged to a record last year, making the fuel too expensive for many consumers. It will also boost Prime Minister Narendra Modi's strategy to more than double gas' share in the country's energy mix by the end of the decade to help reduce pollution.

“The lesson learned by the consumers is that they can’t run the business based on spot,” Akshay Kumar Singh, chief executive officer of Petronet LNG, said earlier this month. “Going forward, we will be finding a lot of long-term contracts signed by different stakeholders.”

Despite being highly price-sensitive, India's consumers - from power plants to petrochemical facilities - were too dependent on the spot market last year, which was more expensive than long-term contracts. As a result of Russia's invasion of Ukraine, the nation's LNG imports plummeted by nearly 20%.

Even though LNG rates have dropped and India is once again purchasing spot shipments, this may not last. In the second half of 2023, LNG prices are expected to increase, limiting demand growth, according to Ayush Agarwal, LNG analyst at S&P Global Commodity Insights.

As the talks are ongoing, Petronet is in the process of extending an existing contract with Qatar at a lower price and securing additional volumes, according to the company's executives. They said the company is in talks with several other suppliers.

The company is seeking to purchase a stake in a US LNG export terminal along with a 1 million ton per year deal. According to a senior company official, nine suppliers have expressed interest. Another official said that GAIL is also in talks with several other suppliers outside of the United States.