Our exclusive: High LNG prices will not last: India Inc swears by GAIL – 20 Jan 2021

While high spot LNG prices have dried up LNG cargoes into India, these prices are unlikely to last beyond a point.

Also, Indian companies have learned a lesson: that while spot LNG can be a viable way of plugging a gap in supply, sticking to long term contracts, whether Henry Hub based or Brent-based is the best way out.

Sticking to good old GAIL will make more sense than to go with newer players. The fertilizer industry, for example, will always pitch for GAIL even if a competitor is providing gas at a lower rate. "Whenever there is an unscheduled shutdown, we have found GAIL adjusting the volumes elsewhere instead of imposing take-or-pay penalties. This is something a new supplier cannot afford to provide," a source in Iffco, the country's largest fertilizer company told this website. "Look at the situation now, GAIL continues to provide gas while others have run for cover," he added.

As for the power sector, even in normal times, the survival of gas-based power plants was a problem, but with LNG prices sky-high, even those with captive distribution systems such as Torrent are balking at buying gas. In the merit order system, it is near-impossible to find any demand for gas-based power.

What should be the proportion of spot vs. term? Well, that depends on the risk-taking capacity of the buyer. But the lesson here is not to be swayed by low spot LNG prices to take long term decisions. Just a few months ago, when spot prices were really low, many buyers of US HH-based term gas, were trying to re-read their GSAs to find loopholes to get out of them. They should be thankful now that they have these deals in place.

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