'Any Geopolitical Issue Affects The L&G Market In A Big Way': GAIL's Sanjay Kumar On Oil Prices

Good morning to all of you. You know, the world is a connected world and any geopolitical issue actually affects the LNG market or the crude oil market in a big way. The recent conflict that started a few days ago led to increase in crude oil prices and accordingly it also led to increase in the spot LNG prices all over the world. Some estimates around from $67 the crude oil had gone up to around $80 and around $79 or $80. And the LNG prices, the spot LNG prices, the JKM marker that we track normally moved up from $12 to more than $14. Now all this was due to the concern related to blockage of Strait of Hormuz, through which 20% of LNG of the world moves as well as 20% of crude oil and oil products volume which is traded move through that Hormuz trade. Good thing is that the conflict is behind us and it has shown in the prices. The Brent crude has gone down now to below $70. It's rather approaching 67, 66, etc. And the LNG prices have also cooled off. The Indian West India markers have moved to below $13. They are around $12.50 today. This augurs well for the gas segment in the country because it will help the new demand come and help the spot market for meeting the supply demand gap which could have created a lot of problems. We had seen that during 2022 when the Russian conflict started and the prices of LNG had gone up to more than $50, $60.

See, the world actually trades about 410 million tons of LNG. Approximately 2/3 of that is priced as per long-term contract pricing which goes on Brent basis mostly, Brent or JCC or something like that, some other crude markers. Some of the LNG traded in the world is indexed on Henry Hub, which is the local index of United States. Now remaining volume may be having some other indices, but the point that I want to make is the spot market of LNG has very limited volume. Now we are actually looking at the period when the LNG capacity of about 20% would be added in next one or two years all across the world. Now the demand does not come up immediately. So the balancing would happen in maybe a few years. So till then, for next four or five years starting after few months, we may be looking at softer LNG prices. The new normal that I foresee will be less than $10 of LNG prices across the market. By the way, the crude oil, the Brent, has also the new normal for Brent maybe we may be looking at $65 or $60 up to $70. So if we look at the standard C LNG long-term prices of say 13% of Brent, those prices are also indicating towards the same number.

Not exactly. You know, our contracts are largely based on 3 months Brent average or Henry Hub. That's I'm specifically talking about GAIL. The real crisis lasted for only a few days. So the averaging effect should be there. More than the prices, it is actually the domestic demand which is slightly less this year. The power demand has been less, so the volumes may be reflecting the quarter ending June. June has a lot of power demand traditionally in the past years. This year because of untimely rain, cooler season, the gas-based power did not pick up. We did not have significant demand from them.

See, we are a very good corporate citizen and that's why we went to the investor community and we told that there is some sort of delay in the connectivity to some of our customers in the eastern side of the country. We also had lower power demand during last few months, lower than what we had estimated. Some of the fertilizer plants have taken their shutdown and some of them were not going to operate because of some other issues. So we had gone to the investor community and we had proactively declared that our target for transmission volume would be 132 million cubic meter per day for this financial year and about 135 to 137 million cubic meter per day for next financial year.

See, as per our experience, we believe nature has a method of balancing. So if the power demand was less in last one and a half months, we believe it will come. That's not a scientific statement that I'm making, but the heat would come and the power demand should pick up. Some of our customers are already lined up, few pipeline segments we have already started charging gas. So we are quite sure about meeting the guidances that our management has given during different investor meets in last few months.

So that's a typical sourcing operation that we continue to do. See, we are the pioneers in the LNG segment in the country. The kind of thinking, the kind of strategic calls that we take is actually followed by other LNG buyers in the country and all across the globe. So we had gone to the market for a five-year deal which you said the name of the seller that we awarded to, and the supplies under that transaction have already started actually. And these are many such transactions that are planned and some of them we are able to succeed because they meet our targets. Some of them we are not able to conclude. So possibly the media doesn't come to know about them. But these are every day in the war room that we have. We continue to analyze these market trends and see how can we grow the market and meet the national objective of improving the share of natural gas in the country.