Africa To Offer LNG Import Diversity


BMI View: Petronet is moving to reduce its dependence on Qatari LNG imports, with 80% of the company's current contracted volumes coming from the Rasgas facility. While other Indian LNG importers have looked to Russia, Australia and particularly the US, Petronet is reportedly negotiating with Angola, Mozambique and Indonesia. Due to the considerable LNG potential of Africa and India's strong gas demand profile, we believe East Africa in particular will be crucial to India's plans to diversify LNG imports.

According to a report published by Indian news group, Daily News & Analysis (dna), Petronet LNG is looking to increase the diversity of its liquefied natural gas (LNG) imports due to its over-reliance on Qatar as a supplier. Around 80% of India's contracted LNG imports for 2014 are due to be delivered from the Rasgas LNG facility in Qatar, with the entire volume imported by Petronet LNG. The Rasgas contracts are also not due to expire until 2028 and 2030 respectively, leaving Petronet with a legacy 7.5mn tonne per annum (tpa) (10.2bcm) supply from Qatar. A significant increase in contracted LNG volumes into India is not expected until around 2016, when imports from the US are scheduled to begin. However, it has been GAIL and not Petronet that has lead the diversification trend through its contracts signed with the US and Russia.

Petronet Remains Dependent On Qatar
Indian Contracted LNG Deliveries 2012-2020 (mn tonnes per annum)

Petronet has also been criticised for the single contract it has signed that will enable partial diversification from Qatar. LNG imports from Australia's Gorgon project are due to begin delivery in 2014, though it still remains unclear as to whether the LNG facility will be completed in time to ship this year. Furthermore, the 20-year supply deal with Gorgon arranged a price of US$14.5 per million British thermal unit (/mnBTU), a relatively lofty figure compared to LNG linked to the US Henry Hub benchmark and 2013 landed LNG prices in India of around US$13.75/mnBTU.

Despite the high contract price, India still relies heavily on spot imports, which are priced higher than long term LNG contracts. Current Asian spot prices are around US$18/mnBTU, making a term deal far more attractive. According to our LNG import expectations and contracted LNG import volumes, India will continue to buy large amounts on the spot market over the next three to four years.

Big Spot Buy To Continue
LNG Imports Against Contracted LNG Imports (bcm)

Petronet's efforts to diversify its imports are reportedly leading them to talks with Angola, Mozambique, Russia (Yamal) and Indonesia, to secure up to 3mn tpa (4.1bcm) of new LNG import contracts. Shorter shipping distances from Mozambique and Indonesia to India would give these two countries an advantage on prices. However, the Mozambique LNG export project still remains in the planning phase and we do not expect it to be ready to export until 2020 at the earliest. While in Indonesia, maturing gas fields and growing domestic demand are putting greater pressure on volumes of gas available for export. Russia's Yamal project provides an interesting option though long shipping distances and the likely use of the Suez Canal will limit the competitiveness of LNG deliveries from the project.

African LNG Looking Up
LNG Exports (bcm)

We therefore believe that over the short to medium term, Angola may be Petronet and India's best option to secure new LNG supply diversity. Over the longer term the mega projects in Mozambique and Tanzania could provide a significant volume of new LNG supplies from which to improve long term supply diversity. However, much will be dependent on the pricing structures of the new LNG export projects, along with Petronet's ability to negotiate a better price than it paid for Gorgon LNG.

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Related sectors of this article: Oil & Gas, LNG
Geography: India, Angola, Australia, Mozambique, Russia, Tanzania, United States