More long-term LNG purchase deals, higher storage needed: Petro Secretary

More long-term LNG purchase deals, higher storage needed: Petro Secretary

India will need to ramp up liquefied natural gas (LNG) storage and firm up more long-term LNG purchase contracts to shield itself from the kind of natural gas supply crunch and price volatility seen these days, petroleum secretary Tarun Kapoor has said.

The world is facing a natural gas shortage as the supply has been slow to respond to a surging demand following the easing of Covid-related restrictions and reopening of economies. Natural gas prices are setting new records every day in several markets from China to Europe, pushing up electricity rates and slowing down industries in many places. Asia-delivered spot LNG prices have risen above $34 per mmBtu from under $2 in just one-and-a-half years.

“Commodity and financial traders are amplifying the current mismatch in demand and supply, leading to immense volatility,” Kapoor told ET in an interview. The global prices may stabilise after the winter, he said.

The current frenzy in the international market is also driven by the urgency to fill up storage ahead of an anticipated cold winter. For India, which imports half the natural gas it consumes, such unprecedented volatility also endangers its goal of raising the share of gas in the energy mix to 15% by 2030 from the current 6%.

“We are planning to get gas companies to have more LNG storage capacity that can be drawn down during shortage,” said Kapoor, adding that the government need not get into building LNG storage and the task should be best left to commercial organisations.

For the past few years, the government has discussed plans to set up strategic natural gas reserves, on the lines of strategic oil reserves, but Kapoor says conventional natural gas storage in depleted fields or salt caverns “may not be feasible” in India. Such storages, scattered across the US, Europe, and China, are expensive to build.

Kapoor said the country will have to tie up more LNG under long-term contracts with a price formula that helps tide over short-term spikes, ensuring stable supply and price to consumers. Currently, long-term contracts, usually lasting around 20 years, make up about half of the country’s LNG purchases.

“Downstream companies can also look at investing in upstream gas projects abroad that could give them sustained supply,” he said.

Prices of locally-produced gas are likely to be more stable than the rates in the global market as domestic gas is guided by a formula or has a ceiling and can’t be exported. The gas price formula is linked to the average of trailing year-long prices on international hubs.

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