India pays a 40% premium for spot LNG to replace Qatari and Emirati supply

Energy companies are ramping up liquefied natural gas (LNG) purchases on the spot market to offset supply disruptions from the Middle East and meet surging domestic demand. At least five state-run companies, including Indian Oil and Gujarat State Petroleum, have hit the market, issuing purchase tenders or securing spot shipments for June and July delivery, Bloomberg reports.

Why it matters: India is scrambling to fill a supply gap left by absent volumes from Qatar and the UAE. Together, the two Gulf nations have historically accounted for 57% of India’s pre-war LNG inbound shipments. That, too, at a premium of 40% per mmBtu, to keep its power grid and fertilizer plants afloat.

Why now? The buying marks a reversal of March and April, when India reduced spot purchases after the Iran war sent LNG prices soaring. Increased demand from fertilizer plants, power producers, and household consumption is driving the policy shift.

A domino effect of demand and heat: Demand from power generators has risen as extreme summer temperatures push electricity consumption to record levels. Gas-fired generation reached 651 mn units during the first week of June, up almost 70% from 383 mn units in the same period in May. The surge also comes on the back of fertilizer manufacturers — increasing output ahead of the post-summer sowing season.

By the numbers: Refiners are now purchasing six LNG shipments per month from the spot market. Before the war, they were on average picking up one shipment per month.

Shoring up oil inventories with Adnoc deliveries

Refiners have also secured enough crude oil to meet demand through August, leaning on increased UAE supplies. In recent weeks, Indian refiners increased purchases from Abu Dhabi National Oil Company (Adnoc), while procuring spot cargoes from Latin America and Africa, Reuters reports.

Adnoc delivers: Indian buyers have been lifting Adnoc crude and LPG cargoes through ship-to-ship transfers and storage hubs in Fujairah, Zirku and Das Island. State-run Hindustan Petroleum bought 4 mn barrels of Murban crude for August delivery — priced at a premium of about 40 cents per barrel — while securing additional cargoes from Brazil and West Africa. Indian Oil and Mangalore Refinery also tapped spot markets to buffer up inventories.

Why it matters: Indian state refiners bypassed shipping restrictions in the Strait of Hormuz by drawing down storage in Fujairah and orchestrating ship-to-ship transfers near Sohar, Oman, and Malaysia. Adnoc is actively insulating its largest Asian customer from regional trade blockades. Meanwhile, New Delhi and Abu Dhabi are fast-tracking plans to expand UAE-linked strategic oil reserves in India to 30 mn barrels.

India, UAE build oil buffer

India and the UAE are moving to expand Abu Dhabi-linked crude storage in India, giving New Delhi more supply cover as Middle East shipping and energy risks remain elevated, the Economic Times reports. The plan could also give India access to storage in Fujairah, the UAE’s eastern oil hub, as part of its strategic petroleum reserve network.

UAE-linked crude storage in India could increase to 30 mn barrels from 5.8 mn barrels, India’s ambassador to the UAE, Deepak Mittal, told the news outlet. However, the new storage projects could take a few years, depending on site selection, technical feasibility, and implementation.

UAE footprint: Abu Dhabi National Oil Company, the UAE’s state-owned energy company, already holds about 5.86 mn barrels at India’s Mangalore strategic reserve facility. New capacity could be added at Mangalore, Visakhapatnam, and Chandikhol.

Gas reserves next: India and the UAE are also working on a strategic gas reserve framework, including the possible use of existing LPG caverns in India and new liquefied natural gas storage facilities.

India clamps down on fuel hoarders

Bulk diesel sales are capped at 200 litres per customer per day for 90 days as well as large commercial and industrial users are barred from buying gasoline and diesel at retail outlets**.** This comes as state-owned retailers struggle to meet demand and mount losses from selling fuel below market rates, Reuters reports.