Centrality of Natural Gas in ties between India and Qatar

What’s in today’s article?

• Why in news?
• News Summary: The centrality of natural gas in ties between India and Qatar
• Nature of trade relationship between India and Qatar
• Gas import dependency of India
• Demand for natural gas in India
• India, Qatar, and LNG
• The global LNG market
• Future of LNG Market

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.

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.

Q1) What is Liquefied natural gas (LNG)?

Liquefied natural gas (LNG) is natural gas that has been cooled to a liquid state. LNG is made up of mostly methane (CH4) and some ethane (C2H6). It's cooled to between -161°C and -163°C. 

Q2) What is a seller's market?

A seller's market is a market where demand for a product exceeds its supply. This imbalance gives the seller the advantage to negotiate better deals from multiple buyers.

Source: The centrality of natural gas in ties between India and Qatar