Why in news?
- The death sentence given to eight former personnel of the Indian Navy by a court in Qatar presents the biggest challenge yet to India’s historically friendly ties with Doha.
- This situation is particularly concerning due to the pivotal role of liquefied natural gas (LNG) in the trade partnership between the two nations.
- LNG constitutes nearly half of India's total imports (in terms of value) from Qatar, amplifying the complexity of the challenge at hand.
What’s in today’s article?
News Summary: The centrality of natural gas in ties between India and Qatar
Nature of trade relationship between India and Qatar
- In the case of India and Qatar, the balance of trade is tilted heavily in the latter’s favour.
- It is India’s largest source of LNG — gas that has been super cooled to liquid form so that it can be transported by sea.
Gas import dependency
- India’s import dependency in natural gas is around 50%, and given the government’s concerted push to increase natural gas consumption, imports are only likely to rise in the coming years.
- Government-owned Petronet LNG, India’s largest LNG importer, has a long-term contract with Qatar for the import of 8.5 million tonnes per annum (mtpa) of LNG.
- In addition, Qatari gas has a sizable share in India’s LNG purchases from the spot market.
Demand for natural gas in India
- India has set itself an ambitious target to increase the share of natural gas in the primary energy mix to 15% by 2030 from a little more than 6% at present.
- This is bound to result in a rapid increase in LNG imports over the next few years.
- Natural gas is seen as a significantly cleaner alternative to conventional petroleum fuels like diesel and petrol, and is usually cheaper than crude oil.
- For India, which has an import dependency of over 85% in crude, gas is both more affordable and a better transition fuel in the energy transition pathway.
India, Qatar, and LNG
- India’s import from Qatar
- India’s total imports from Qatar in FY2022-23 were valued at $16.81 billion, of which LNG imports alone were worth $8.32 billion.
- While Indian LNG importers continue to make efforts to diversify sourcing, it could be years before the high reliance on Qatar can be reduced.
- India’s export to Qatar
- India’s exports to Qatar were valued at just $1.97 billion in FY2022-23.
- The major exports include cereals, copper articles, iron and steel articles, vegetables, fruits, spices, and processed food products.
The global LNG market
- The global LNG market is a seller’s market after Russia’s invasion of Ukraine and the sanctions that have disrupted Russian natural gas supplies to Europe.
- After the war broke out, prices, particularly of LNG spot cargoes, surged globally.
- Compared with term contracts (such as the one Petronet has with Qatar), the spot LNG market is prone to higher price volatility.
- In a supply glut, spot prices tend to fall more steeply than term contracts, as pricing in the latter is based on an agreed formula between the buyer and the seller.
- And when supplies are tight, spot prices tend to rise much more than term contract rates.
- The extreme price volatility of the past couple of years in global LNG markets has established that term contracts are the more viable option to secure supplies at a reasonable and stable price.
- This has pushed LNG importers all over the world, including India, to scout for long-term contracts with major suppliers, of whom Qatar is the foremost.
- Over the past few weeks, Doha has announced 27-year LNG supply deals with French, Dutch, and Italian energy majors.
- In the preceding months, it had signed long-term contracts to supply LNG to China and Germany.
- Petronet’s term contract runs out in 2028, and negotiations for an extension are currently under way.
- India is also looking to sign more long-term LNG contracts.
Future of LNG Market
- Analysts and industry experts predict that the global LNG market is likely to turn into a buyer’s market over the next few years.
- A buyer's market refers to a market condition in which there are more goods or services available than there are buyers for them.
- In such a market, buyers have the advantage because there is a surplus of supply, giving them greater negotiating power.
- This is due to a surge in new LNG export projects coming onstream.
- This scenario, however, is still a few years away. And even then, a large chunk of this new LNG export capacity is expected to come onstream in Qatar itself.
