South Asia

Published at 14:23 24 Jul 2019 by . Last edited 11:18 22 Aug 2019.

Users licensed for the data service can access our India gas supply and power generation data.

Two factors are working to boost LNG imports in South Asia: low prices that are spurring gas demand, and new LNG regas infrastructure. Regional imports grew in June by 0.51 Mt y/y (19%). India saw takes increase by 0.09 Mt y/y (5%) after the Phase 3 expansion at Dahej increased its capacity by 2.5 Mtpa in June. Delays at other terminals remain due to monsoons (Jaigarh FSRU) and contractual disputes (Mundra), but we forecast Indian imports will expand by 2.4 Mt y/y in H2 19 (22%). Low prices will also aid India as JKM prices remain bearish, with delivered prices to India hitting a three-year low in June of 4.43 $/mmbtu. A proposal from India’s parliament to scrap a 2.5% levy on LNG imports could likewise push prices lower if enacted. Bangladesh and Pakistan both raised domestic gas prices in early July, as Bangladesh was eager to limit subsidisation losses of LNG imports, while Pakistan needs to shore up its finances after a $6 billion IMF loan. Still, we project imports will grow in both countries in H2 19. Low prices and the 240 cargo 10-year supply tender it has gone out for underpin our forecast for Pakistan’s growth, while Bangladesh continues to grow y/y off a low baseline.

South Asia continues to utilise the wave of low global LNG prices to boost imports. Takes for the region’s three importers grew by 0.51 Mt y/y (19%). While Bangladesh’s imports of 0.37 Mt make up the lion’s share of the growth, both India and Pakistan also logged y/y increases of 0.09 Mt (5%) and 0.06 Mt (9%) respectively. All three countries recorded higher y/y imports for every month of Q2 19 totalling regional gains of 2.0 Mt y/y, a trend we expect to continue given our projection for regional imports growth of 6.1 Mt y/y (42%) in H2 19.

We have long stated that India’s appetite for LNG imports would hinge on two factors: low prices and expanded regasification infrastructure. Given India receives the vast majority of its LNG under long-term contracts, it is only wont to dip into the spot markets if price conditions are favourable. While Q1 19’s average delivered prices to India of 7.10 $/mmbtu led to a 0.5 Mt y/y (9%) contraction in imports, Q2 19 prices slumped to 4.58 $/mmbtu. Delivered prices to India hit a three-year low in June of 4.43 $/mmbtu, facilitating the greater spot purchases.

Prices in India might have further room to fall as the budget under consideration in parliament has proposed scrapping the current 2.5% LNG import duty. The proposal is part of a series of measures promoting green energy (or, at least, greener energy than the dominant coal) and recognises the increasing gas shortages given flat-lining domestic production. India’s gas output in H1 19 of 16.3 mmcm was up by just 2% y/y, driving the need to support supplies through LNG.

June also saw the start of new regas capacity with Dahej’s 2.5 Mtpa Phase 3 expansion. Imports through the terminal immediately jumped, hitting an all-time high of 1.59 Mt in June (+13% m/m). We forecast Indian imports will expand by 2.4 Mt y/y in H2 19 (22%), even as the broken record of delays to brand-new regas terminals spins again. The latest delay comes from H-Energy’s 4.0 Mtpa Jaigarh FSRU, which pushed its start-up date to Q4 19 due to heavy monsoon rains. H-Energy’s downstream 635-km pipeline connecting Jaigarh to Mangalore has been delayed, to 2023, due to adjacent highway widening hindering construction activities for the pipe.

Still, Jaigarh, with its immediate connection to the national gas grid via a 60-km pipeline to Dabhol, is in better shape than other new Indian regas terminals. Indian Oil’s 5.0 Mtpa Ennore LNG has taken just two cargoes since commissioning in February due to a lack of downstream pipelines, while Adani Group’s 5.0 Mtpa Mundra LNG is mechanically complete but not yet ready to start amid ongoing contractual disputes.

Our Indian import forecast would be even higher but for a statistical reclassification from the nation’s Ministry of Petroleum and Natural Gas, which boosted the figures for 2018 imports by an average of 0.1 Mt/m. The adjustment also lifted 2017’s imports by 0.05 Mt/m. Our balances have been updated to reflect the changes.

Import growth in Bangladesh is projected to hit 3.0 Mt in H2 19, up from 0.6 Mt y/y as the country moves into its second year of imports. Even as the y/y baseline moves up, growth will still be substantial, thanks in part to the smooth start to operations for the 3.8 Mtpa Summit FSRU, which took three cargoes in June. Growing gas use continues to play a key role in Bangladesh’s economic development, epitomised by recent protests in Dhaka after the country’s parliament raised the price of domestic natural gas by 33% starting on 1 July. The move will help offset the losses incurred by state-owned Petrobangla, which still sells gas at a loss despite the sustained summer decline in JKM prices.

Pakistan’s Oil and Gas Regulatory Authority recently moved to raise the price of natural gas for its consumers by 200% starting on 1 July. The increase was part of an effort to show the IMF that fuel subsidies were being unwound in advance of the Fund’s decision on an emergency $6 billion loan to Pakistan (see Global LNG Panorama: Autumnal surprise, 9 July 2019). The government has prioritised using the money from the loan—which was granted on 3 July—to shore up its dwindling foreign exchange reserves. That likely means delays to the country’s recently approved third LNG terminal, due to be located in the port of Karachi. Start-up of the facility is likely to slip beyond its original H1 20 in-service target given the lack of funds.

Despite the infrastructure delays, as well as the potential for dampened gas demand in the wake of the price increases, we still forecast Pakistani import growth of 1.3 Mt y/y (42%) in H2 19. Low prevailing global LNG prices will allow Pakistan to buy more LNG even with its current financial troubles. That—and its current tenders for two cargoes a month over the next ten years that will shore up consistent supply—underpins our forecast for higher imports.

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