LNG Suppliers Focus On Spot Offers When Price Rises – Buyer

By Anna Shiryaevskaya and Verity Ratcliffe (Bloomberg) –

According to GAIL India Ltd., a major buyer of LNG, liquefied natural gas suppliers limit the volume they deliver under long-term contracts in favor of cash sales at higher prices.

LNG spot prices have hit a seasonal record as buyers in Asia and Europe scramble to secure their supplies to avoid a looming winter supply crisis. In contrast, long-term supply agreements, typically tied to oil prices and contractual delivery volumes, are now less than half the spot market rate.

“Suppliers are trying to limit supply, quantities in the long run, to get a better price in the spot market and send it somewhere else,” ES Ranganathan, director of marketing at GAIL, said in an interview. “We had to buy cash cargoes at a higher price. “

Gail must purchase LNG on a spot basis in order to meet supply contracts with its own customers, although India’s import needs are typically 80% covered by long-term supplies. As the country’s demand for electricity has increased, so has the need for gas. But soaring prices have also spurred the need to switch to alternative fuels such as naphtha, affecting energy-intensive industries such as ceramics and glass.

“The power companies want more gas,” Ranganathan said on the sidelines of Gastech, a major industry conference in Dubai, on Wednesday.

There is currently no risk of outages and customers are paying for their supply, improving GAIL’s margins, he said.

GAIL is considering a new LNG supply contract with a term of five to eight years, seeking a price link with Brent oil. These conditions will likely exclude a US supplier, as US LNG is primarily tied to the local gas benchmark Henry Hub. In addition, the shipping distance is longer, and US suppliers prefer 10 years or more offers.

GAIL’s current bid is roughly 60% oil-related and 40% Henry Hub-related, according to the executive.

“We are on the lookout,” he said. “For us, Brent is the best because our customers also prefer Brent.”

–With help from Stephen Stapczynski.

© 2021 Bloomberg LP

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