Offshore staff
LONDON – Future deepwater gas production offshore India could be impacted by low spot LNG prices, according to Wood Mackenzie.
Although deepwater developments are expected to drive India’s gas production growth – adding more than 1 bcf/d of new supplies by 2023 – only 15%, or 200 MMcf/d, has been contracted currently, the consultant said.
With local market demand affected by COVID-19, and with low spot LNG prices likely to persist at least through 2022, full commercialization of deepwater discoveries may be at risk.
Wood Mackenzie principal analyst Alay Patel said: “Gas from the deepwater fields will be sold in Andhra Pradesh and the much larger Gujarat/Maharashtra where it will compete against spot LNG directly.
“The critical period for producers will be the 2020/2021 period when spot prices are set to remain low. We estimate that around 35% of uncontracted volumes in 2022 are at a higher risk of being replaced by spot LNG.”
Prospects for deepwater gas appear to be better in the eastern states of Andhra Pradesh and Telangana which do not have access to LNG, with the regional pipeline network supplied mainly from ONGC and Reliance’s fields at Kakinada port.
However, in the western region of Gujarat and Maharashtra, there is ample LNG storage and pipeline infrastructure, and ready access to LNG and domestic gas supply.
This means that the next 176 MMcf/d of deepwater gas to be marketed will cost more than spot LNG at 8.4% indexation (at wellhead), the consultant claimed, after adding the East-West pipeline tariff.
Wood Mackenzie senior analyst Vidur Singhal said that for gas buyers in India, procuring spot LNG mitigates the risk of ‘take or pay’ obligations compared to the new deepwater domestic gas contracts. This is because buyers are indebted to pay for a minimum 80% of contracted gas volumes regardless of seasonal demand changes.
“Historically, price-sensitive Indian buyers have increased spot purchases when prices drop, and we see this trend playing out through next year.”
Patel added: “Upstream companies might have to face difficult decisions when they auction their volumes through to 2022. Either accept lower prices and consequently low returns or delay sales until the prices are more attractive.”
07/21/2020
