India Defies Global Energy Crisis: High LNG Prices Fail To Stop Gas Imports

The global energy market is currently navigating through a period of intense volatility and uncertainty. A significant surge in geopolitical tensions in the Middle East, involving the United States, Israel, and Iran since February 28, has severely disrupted the global gas supply chain. This instability in one of the world's most critical energy-producing regions has led to a dramatic spike in prices. Specifically, Asian spot Liquefied Natural Gas (LNG) prices have more than doubled, reaching a staggering 26 dollars per million British thermal units (mmBtu). This represents the highest price level recorded for the fuel since December 2022, creating a challenging economic environment for major energy consumers across the continent.

Impact on Asian Demand and Industrial Shutdowns

The exorbitant cost of gas has Notably strained the national budgets of several large Asian economies. According to a report by Reuters, LNG demand across Asian nations is projected to decline by 3 to 10 percent this year. Northeast Asia is bearing the brunt of this crisis, while 1 million tons. The high cost of imported gas has pushed several Chinese industries, including ceramics, methanol, and glass manufacturing, to the brink of closure or forced them to drastically reduce production levels. In response, China has pivoted toward increasing its domestic gas production rather than relying on expensive international imports. Similarly, demand has softened in Japan and South Korea, partly due to a milder winter which reduced the necessity of gas for power generation.

India and Bangladesh Maintain Purchasing Momentum

While gas demand is faltering across much of Asia, India presents a notably different scenario. Despite the high price environment, India has remained a consistent buyer of spot LNG. Bangladesh has also followed a similar path, primarily securing gas supplies to sustain its power generation capabilities. Shruti Shah, an analyst at LSEG, provides critical insight into this trend, noting that India's LNG demand is anchored by two vital sectors: City Gas Distribution (CGD) and the Fertilizer industry. These sectors combined account for approximately 70 percent of India's total LNG imports. The essential nature of these industries means that India must continue its purchases regardless of the price surge, although the high costs have inevitably exerted some pressure on the domestic economy.

Supply Chain Disruptions and Strategic Recovery

The primary driver behind the skyrocketing prices is the ongoing conflict in the Middle East, while reports indicate that Iranian strikes have caused significant damage to Qatar's LNG infrastructure, resulting in a 17 percent reduction in Qatar's LNG export capacity. The situation became so critical that QatarEnergy was forced to declare 'Force Majeure'—a legal clause for extraordinary circumstances—and temporarily halt exports. This disruption initially caused difficulties for India, with the Chairman of GAIL noting that the country had to limit gas consumption in the early stages of the crisis, while however, the trading teams at GAIL and PetroChina successfully identified alternative supply routes from other parts of the world, including the UAE and other global regions. Through these strategic efforts, India has managed to restore its supply to between 90 and 95 percent of its requirements. Companies remain optimistic that consumption will return to normal levels once global supply stabilizes and prices soften.

Future Outlook and Market Competition through 2027

The timeline for price relief remains a subject of intense speculation. Market recovery largely depends on how quickly gas supplies from the Gulf nations can return to normalcy, while if QatarEnergy can resume full exports through the Strait of Hormuz, agencies like Rystad Energy and Kpler estimate that Asian LNG demand could climb back to 280 million tons by 2027. However, experts warn that prices are unlikely to return to pre-war levels anytime soon. 90 dollars by 2027. Rystad Energy projects prices to hover around 17 dollars next year. Plus, Wood Mackenzie has cautioned that even if supply normalizes by the end of this year, prices will remain elevated due to intense competition from Europe, which needs to refill its gas storage before the winter seasons, ensuring a tight market through 2027.