High Crude and LNG Prices Weigh on India's Oil and Gas Sector
Key Takeaways
- •Asia's spot LNG price reached its highest level since 2022 last week, up 61% from a year earlier and 22% over the past three months.
- •Freight rates on the Ras Tanura-to-India route have jumped more than 400% since February 28, when the Iran war began and the Strait of Hormuz was closed.
- •India's crude oil import bill rose 60% year on year in the April-June quarter, and July's bill was up 41% from a year earlier.
- •Marketing margins on gasoline and diesel in India remain negative, though stronger refining margins have partly offset the pressure.
- •Elevated LNG prices are expected to squeeze Indian gas sector margins and lead to softer LNG imports in September, after strong arrivals in August.
A renewed rally in crude oil and LNG prices, combined with sharply higher freight costs, is pressuring the marketing margins of India's oil and gas sector as the industry contends with the fallout of the Iran war on global oil and LNG trade flows.
Stronger refining margins have offset part of the downward pressure, but marketing margins on gasoline and diesel remain negative. Meanwhile, elevated Asian LNG prices are expected to squeeze margins across the gas sector and likely result in softer Indian LNG imports in September, India-based brokerage Equirus said in a note carried by local media.
Amid uncertainty over LNG supply from the Middle East and intensifying competition between Europe and Asia for winter gas, Asia's spot LNG price surged last week to its highest level since 2022 — up 61% from a year earlier and 22% over the past three months. As a result, India's LNG imports are likely to trend lower this month after strong arrivals in August, according to Equirus. The elevated prices are weighing on India's large gas consumers, whose costs remain very high. The squeeze is particularly consequential for India because the country imports the bulk of the natural gas it consumes, leaving city gas distributors, fertilizer producers, and power generators exposed to spot market swings when domestic supply falls short.
On the oil side, India's crude import bill has soared in recent months due to reduced flows from the Middle East and heightened shipping risks in the Strait of Hormuz. Freight rates on the key route from Ras Tanura, on Saudi Arabia's Persian Gulf coast, to India have jumped by more than 400% since February 28, when the war began and Iran closed off the Strait of Hormuz. The exposure is amplified by the fact that India imports roughly 85% of its crude oil, making its import bill and downstream fuel economics especially sensitive to both price and shipping-cost movements tied to the Persian Gulf chokepoint.
India paid 60% more for crude oil imports in the April-June quarter compared with the same period last year, as the surge in prices outweighed slightly lower import volumes. The increase continued into the start of the third quarter, with the July import bill up 41% year on year.
By Charles Kennedy for Oilprice.com
