Shortage of LNG tankers beginning to affect supplies to India: Industry

Tightening Russian gas supplies to Europe has led to scramble for tankers before winter sets in

The rising global shortage of liquefied natural gas (LNG) tankers has begun to affect the supply of the fuel to India, industry executives have warned.

India is the fourth-largest LNG importer globally. International purchases have risen at a time when the continuing diplomatic tussle with Russia has led to European nations scrambling for tankers to transport LNG before winter hits. Meanwhile, the lack of available transport vessels have led to a slide in LNG imports to India.

"Ever since the Russia-Ukraine conflict began, the gas supply that was happening from Russia to Europe has moderated, which Europe is trying to offset by procuring LNG. This has caused a sudden spike in demand for liquid cargo vessels from Europe," a Mumbai-based sector expert said.

The analyst added that it is likely that a number of vessels belonging to Russia which carried LNG would have gotten blacklisted in the aftermath of international sanctions against the country. This may have led to an even lower supply of these vessels.

The number of LNG ships available for spot deals remain exceptionally limited. Globally, most of the LNG fleet always remain locked up on in long-term charters. As a result, the spot market is extremely thin, and is now shrinking further.

The Shipping Corporation of India (SCI) has only one vessel for gas transit in its fleet. Most vessels for LNG are operated by foreign shippers, and Indian traders avail their services largely through spot markets.

Oslo-based investment banking firm Clarksons Securities, which specialises in shipping energy and offshore energy, said earlier this week that rates for LNG carriers have risen to an average of over $300,000 for a single voyage.

While the International Energy Agency (IEA) has said that Europe's gas storage for this winter was nearly full, the following season poses a significant challenge as contract prices rise and supply chain issues are expected to continue into the next year.

"The LNG market has been more volatile than even the crude oil market. Russia is a large exporter of NatGas. Russia has curtailed NatGas supply to Europe. So, gas prices have doubled in recent months. The war situation is seen creating risks for vessels and discouraging them from going closer to the scene of military action," said Jayyannt Lapsiaa, President of the All India Liquid Bulk Importers and Exporters Association.

"Availability of LNG vessels has tightened and freight rates are up," he added. 

LNG imports affected

Indian buyers have expressed unwillingness to buy expensive LNG spot cargoes due to their inability to pass on costs to industrial and residential users, and also lower domestic gas prices due to existing price ceilings.

S&P global has stressed that rising spot prices and tightening supply chains have led to imports of LNG into Indian reducing to multi-year lows in August. Figures for September are yet to be released by the government.

India’s August LNG imports were only about 1.45 million tonnes, the lowest since at least 2018, compared with 1.84 million tonnes in July.