Global LNG Prices Surge 6%: Impact on India’s Gas Affordability
Global energy markets are grappling with significant supply disruptions, leading to rising liquefied natural gas (LNG) prices and increased crude transportation costs. According to a report by Jefferies, LNG prices have surged 6% week-on-week, averaging $32 per million British thermal units (mmBtu). This increase, coupled with lower gas inventories in Europe, raises concerns about the affordability of imported gas in India as winter approaches.
The report indicates that European gas storage levels are currently at 75%, down from 83% during the same period last year. As a result, domestic affordability in India is under pressure. Jefferies noted, “Domestic affordability is stretched at current prices,” and expects gas prices to remain elevated as winter approaches.
Crude shipments face disruptions despite recovery in Middle Eastern exports
While crude oil exports from the Middle East have rebounded to over 90% of pre-war levels, supply-side disruptions persist. Renewed attacks have pushed the physical crude premium up 8% week-on-week to $9 per barrel. The logistics of crude oil movement have also become more complex, with shipments spending longer periods aboard tankers and importers opting for longer routes to diversify their supplies.
The report highlights that crude oil-in-transit has reached an all-time high due to ship-to-ship transfers. Although freight rates declined 3% week-on-week, they remain nearly eight times higher than at the beginning of the conflict. Currently, freight costs account for more than 25% of the landed cost of crude oil, compared to just 3% before the war.
Narrowing Russian crude discounts add to OMCs’ burden
Indian oil marketing companies (OMCs) are facing increased procurement costs as discounts on Russian oil have significantly narrowed. Russian Urals crude is now trading at a $2 per barrel discount to Brent, down from $14 per barrel at the end of February. Meanwhile, the discount on Dubai crude against Brent has widened sixfold week-on-week to $4 per barrel.
With procurement costs for OMCs aligned with the Indian crude basket price of $118 per barrel, companies are incurring substantial marketing losses on petrol and diesel. Jefferies reported that the current losses on petrol and diesel are Rs 25 and Rs 37 per litre, respectively, based on a 15-day average pricing.
Russian supply disruptions expected to support margins through FY27
The report also addresses the impact of Ukrainian attacks on Russian refining infrastructure, which have reduced Russian exports and tightened the supply of middle distillates. Normalization of supply chains is anticipated to take time, which is expected to support elevated margins through FY27.
Additionally, disruptions to petrochemical supplies from the Middle East have improved margins across the sector. Damage to major facilities in Iran and Saudi Arabia, along with ongoing disruptions in naphtha shipments to Northeast Asia, have contributed to this trend. Jefferies noted that average margins across polyethylene (PE), polypropylene (PP), and polyethylene terephthalate (PET) have risen 55% compared to levels at the end of February, benefiting Reliance’s O2C profitability.
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