Falling LNG rates may hit discoveries: Industry executives

A decline in global liquefied natural gas (LNG) rates to record lows will likely put to risk domestic discoveries that require high prices to be viable and justify their development, industry executives said.

For years, domestic producers cited high LNG prices to justify their demand for market rates for local produce. Price restriction on local gas from difficult terrains was lifted a few years ago, encouraging investments in such fields but now when the rewards are to be reaped, LNG prices have fallen, hurting local prices. LNG rates have fallen below $3 per mmBtu from above $10 just six years ago. The coronavirus outbreak in China has amplified the fall, cutting spot rates by a third in a month.

In November, when RIL-BP offered 5 million metric standard cubic meters a day (mmscmd) of gas proposed to be produced from its KG Basin field, the prices quoted in the auction were very close to the floor rate fixed by producers. The floor itself had been lowered before the auction as potential bidders found it too high. Around the same time, ONGC had to conduct two rounds of auction just to sell 0.75 mmscmd of its deep sea gas.

“The market has turned against us. Prices are expected to remain low for a longer period, which makes it hard to justify developing some of the domestic discoveries, which are probably viable only with gas prices above $4 or $5 per unit,” said an executive at an upstream firm who didn’t want to be named.

Most of India’s new gas discoveries lie in difficult terrains and are going to be costlier to develop, and therefore need higher prices to justify their development, said another executive, adding that companies will be inclined to delay such projects which are still at drawing board stage but may not slow projects which have got a lot of investment.

ONGC, Reliance and Vedanta didn’t respond to ET’s emailed query for the story.

ET Energy World
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