Despite Cargo Diversions, Asian LNG Demand Peaks

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  • LNG sellers capitalize on strong spot prices amid cargo diversions.
  • India’s gas-fired power demand drops 24% on year in H1 May: Platts Analytics.
  • Price impact of India diversions only about 5 cents/MMBtu: Citigroup.

A recent news article published in the Platts by Yi-Le Weng, Shermaine Ang and Eric Yep states that Strong Asian LNG demand soaks up India cargo diversions amid COVID-19 crisis.

Strong Asian LNG demand

Strong Asian LNG demand for summer and tight supply amid maintenance and outages at multiple terminals have helped the market absorb the spot LNG cargoes rejected by India due to its COVID-19 related lockdowns, according to traders and market participants.

This has muted the market impact of the diversions and enabled Indian gas importers and their suppliers to find alternate destinations for contracted LNG volumes without any force majeure notices being issued or triggering any major disputes, they said.

India’s first nationwide coronavirus lockdown

In contrast, during India’s first nationwide coronavirus lockdown in late March 2020, its gas demand plunged and gas companies Gujarat State Petroleum Corp. and GAIL Ltd. had to issue force majeure notices to their suppliers for March-April delivery cargoes to LNG terminals like Dahej, Mundra and Dabhol, which exerted downward pressure on regional LNG prices.

This time around, LNG sellers were able to offer the diverted term cargoes in the spot market — and fetch a higher price — amid sustained high spot LNG price levels. The S&P Global Platts JKM was assessed at $10.47/MMBtu on May 21, nearly five times the assessment on May 22, 2020, at $2.15/MMBtu.

A Singapore-based trader view

A Singapore-based trader said that a term cargo priced at a 13% slope to Dated Brent, which works out to around $8.60/MMBtu, could be sold at a 15% slope or more than $10/MMBtu in the spot market, making it profitable for traders to divert unwanted LNG. “It’s a win-win for diversions from India,” the trader said.

Asia’s spot LNG market is being supported by unprecedented LNG demand from North Asia, especially China, where economic activity has been relatively robust in 2021 on the back of recovery from the pandemic.

“The market is quiet about the diversions from India, which have not affected the market at all,” an Atlantic Basin LNG supplier said.

LNG carriers headed for Indian ports

Several LNG carriers headed for Indian ports have been diverted in recent weeks; the South Korea-flagged HL Ras Laffan was diverted from Dahej to South Korea on May 15-16, and other vessels were previously diverted to Fujian, Europe and the Middle East, according to shipbrokers and vessel tracking data.

India’s state gas company GAIL was heard seeking an LNG cargo for June 11-13 delivery to Hazira terminal, but this was due to disruptions at ONGC’s offshore gas production platform on the west coast due to Cyclone Tauktae, which recently damaged offshore vessels, killing dozens.

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Source: Platts

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