South Asia

Published at 15:24 22 May 2019 by . Last edited 11:18 22 Aug 2019.

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April did start to show some demand-side response to low (sub-6 $/mmbtu) JKM prices, with y/y growth across all three South Asian LNG importers. While summer LNG import growth in South Asia should continue to be robust due to those low prices, the extent of the additional demand from the region is still tied up in the commissioning of new capacity and how fast imports can ramp up at those facilities. In India, a case in point is the 5.0 Mtpa Ennore regas terminal, which took a second commissioning cargo in May but had to divert another, likely due to a lack of downstream pipes limiting its access to gas demand centres. The scheduled completion of the Kochi-Mangalore pipeline, which is now a Q3 19 event, should allow higher takes there, while the start-up of the 4.0 Mtpa Jaigarh FSRU should also encourage a rise in takes. The ongoing financial dispute between the co-owners of the 5.0 Mtpa Mundra terminal about commercial terms has now pushed the facility’s start-up back to Q3 19, but that date is still at risk of further delay. Even with all these risks, we expect South Asia’s summer 2019 LNG takes to grow by 4.8 Mt y/y (34%).

April was the first month in 2019 in which all three South Asian LNG importers recorded y/y increases in volumes delivered. Indian imports of 1.89 Mt were up by 10% y/y, while Pakistani takes of 0.74 Mt represented 29% growth. Bangladesh imported 0.30 Mt, from a y/y baseline of zero. While Q1 19 saw imports increase by a more muted 1.0 Mt y/y (13%), we project the acceleration in takes that began in Q2 19 will continue through the year to the tune of 8.2 Mt in full-year 2019 y/y gains (29%).

New infrastructure underpins the potential for India’s forecast growth in imports of 3.2 Mt y/y (15%) in 2019. IOC’s 5.0 Mtpa Ennore regasification terminal took its second-ever cargo in May, sourced from Malaysia. The facility, the first on India’s east coast, is only connected to three downstream industrial customers at present, with pipeline construction to facilitate further downstream demand in phases from 2020. The lack of established demand could be a reason why a further commissioning cargo, which had been due to arrive on 12 May from Qatar, was instead diverted to Port Qasim in Pakistan.

Further import capacity additions in India are due online in Q3 19. The 5.0 Mtpa Kochi terminal took in two cargoes in April, the first month it has received multiple full cargoes since September 2017. Kochi is likely to see further volume increases upon the Kochi-Mangalore pipeline’s completion in late June. H-Energy’s 4.0 Mtpa Jaigarh FSRU is due to start commissioning in Q3 19 and has tendered cargoes for delivery in October.

The most opaque start-up date belongs to Adani Group’s 5.0 Mtpa Mundra terminal, which in early May was delayed until Q3 19. The facility was originally supposed to enter service in late 2018 but has been repeatedly pushed back due to a dispute between Adani and the project’s co-owners GSPC. A deal has not yet been finalised between the two on commercial terms for imports through Mundra. Mundra has downstream pipelines in place, a rarity among India’s greenfield terminals set to launch, that would allow it to use 1.5 Mt of its capacity upon start-up thanks to the already complete 67 km Anjar-Mundra pipe. We estimate the terminal could begin receiving imports two months after a financial agreement is struck.

Despite India’s higher LNG imports in April y/y, gas use in the country’s power sector actually fell by 0.49 TWh y/y (10%). Hydro generation grew y/y for the tenth consecutive month, skyrocketing by 3.54 TWh y/y (47%). As we have stated in previous months, that trend is likely to continue given hydro stocks remain above y/y levels and the 10-year average, squeezing out some gas-fired generation. Still, we believe there is potential for higher gas demand in India outside of power generation, such as in the industrial sector. This should be facilitated by an increase in spot cargo purchases this summer due to the low JKM prices through the rest of the summer. Current JKM contracts through October are averaging just 5.44 $/mmbtu. The average price for spot cargoes delivered to India in April was just 4.87 $/mmbtu, down by 0.80 $/mmbtu m/m and by 2.37 $/mmbtu y/y.

Bangladesh is already reaping the rewards of new capacity, as LNG import growth y/y in April was aided by the arrival of the 3.8 Mtpa Summit FSRU late in the month. The facility was loaded with LNG from Qatar as it docked and later received its first tanker-delivered cargo on 21 May. This represents a major development for Bangladesh. The country’s only other FSRU was beset by technical issues that delayed its start-up date by three months after its arrival in 2018.

Even with the smooth start-up of the Summit FSRU, state-owned Petrobangla has scrapped plans for further floating storage and regas capacity. May saw Petrobangla scrap a plan from India’s state-run Petronet LNG to set up a 7.5 Mtpa LNG import facility off Kutubdia Island in Chittagong. It is instead hoping to advance engineering plans for a land-based terminal nearby at Matarbari to help facilitate further growth beyond the country’s current 7.5 Mtpa in import capacity.

Pakistan’s search for new long-term LNG supplies is in the home stretch after negotiations with Qatar accelerated in early May. To head off the potential of a competing bid from Saudi Aramco after Pakistan entered negotiations with the Saudi company last month (see Global LNG Monthly: South Asia, 26 April 2019), Qatar offered to lower prices to secure the additional 0.4 bcf/d contract. Currently, Qatargas supplies Pakistan with 0.5 bcf/d over 15 years at 13.4% of the Brent price. It has offered to supply 0.9 bcf/d at either 11.25% or 11.5% of Brent, depending on whether Pakistan wants a price review after five or 10 years of the deal. Given Pakistan’s dwindling foreign exchange reserves and expanding current account deficit, the country is likely to go with the cheapest possible option, which should be one of the offers from Qatar.

Fig 1: LNG imports forecast by country, Mt
Source: Bloomberg, Kpler, Energy Aspects

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