India needs to protect its LNG supply in long term to maintain economic growth at current pace

With economic growth of around 8% a year and gas gaining importance against carbon-heavy coal and oil, India could need twice as much gas as it consumes now by 2020. Analyst expect, the gas demand in India is estimated to twofold by the end of the decade that would be about 5 times more than imports of 8.86 million tonnes in the year to March 31, 2011 and liquefied natural gas (LNG) will have to supply the majority of that incremental demand.

India's LNG imports will increase in the next decade to fuel its rapidly expanding economy. Asia’s 3rd largest economy is facing tough completion from Asian giants like China and Japan.

At present Indian economy is the world’s 8th largest importer of LNG and imports are expected to increase by 5 times in coming decade. Indian government has to show some hurry to protect its supply of LNG as Indian buyers are facing competition from China and Japan. Rivalry for supplies is likely to be forceful as Japan could bump up LNG imports by 7 to 8 million tonnes from 70 million tonnes of LNG in 2010 to fire gas power plants to compensate for lost nuclear-power capacity. China's imports are moreover expected to rise around five-fold to 46 million tonnes by 2020 from just over 9 million tonnes of LNG in 2010.

Recent nuclear crisis in Japan have force Japanese buyers to increase the supply for the LNG and this all of sudden demand from Japan is expected to change the global LNG fundamentals and support prices for years, analyst said. The rapid increase in LNG demand from Japan will limit the ability of emerging markets such as India to source LNG, said Francisco Blanch, head of global commodity research at Bank of America Merrill Lynch.

This much desirable additional supply is most likely to come from the top LNG exporters like Qatar, already supplies India LNG on long term contract and last year increased the supply, and Australia, where capacity is undergoing rapid expansion.

Experts have the opine that, with the increasing cost of Australian LNG Project, further delay in the long term supply deal might end up costing more to Indian buyers. The Australian LNG projects is expected to come online in 2015 or before have already reached at least preliminary long-term deals with buyers for their LNG.

In past, Indian companies had held back from signing long term contact, in hope to get better price for LNG. But the rapidly changed scenario because of the Japanese Nuclear disaster had pushed to change this strategy.  

Signing long-term deals now would make sure additional profitable operations for LNG importers planning to build costly import facilities than if they waited, said Amitava Sengupta, the former head of finance at top Indian importer Petronet. Indian companies should definitely go for mid-term (10-15 years) LNG contracts, he added.