In Aug24 and Sep24, Taiwan’s power gen from LNG imports was equivalent to its industrial power load by volume. As IP returned to Covid boom levels, less gen from other fuels has tightened Taiwan’s power market and increased its vulnerability to fuel supply disruptions.
Hydro generation problems in South America continue to tighten the Atlantic Basin LNG market. For October 2024, the combined LNG imports of Brazil+Colombia+Argentina will likely surpass imports into Spain+Portugal+UK, offering a clear perspective on basis (PVB and NBP).
In 2024, natural gas supply from pipeline imports + domestic production is doing >2x more than LNG imports in expanding the size of China’s domestic gas market. Sep24 was the fourth consecutive month of +75mmcmd YoY supply growth from pipeline imports + dom. production.
France was a top 5 importer of LNG during the first half of October 2024. Nearly 40% of France’s imports arrived from Russia during the period
Balance Point Research forecasts the global LNG market will grow from ~400mtpa in 2024 to ~500 mtpa by 2028 based on timelines for under-construction liquefaction capacity. Regionally, the traded natural gas and power markets of North America and Northwest Europe will dramatically increase their exposure to fundamental and commercial risks located offshore their domestic energy balances. Northwest Europe has significantly increased regasification capacity for gas supply from LNG imports since mid-2022. North America is adding incremental feedstock gas demand from new liquefaction capacity for LNG exports.
These developments are challenging energy traders to sharpen views on how the global energy market will balance such a large amount of LNG supply growth in a relatively tight window. Undoubtedly, European energy markets will play a key role. But how will Europe’s own bid into the global gas market stack up against other global competition for LNG imports? Will a given TTF forward gas price consistently yield the expected volume of future LNG imports into the regasification terminals of Northwest Europe?
To better answer the questions of how much LNG may arrive in Northwest Europe, Balance Point Research analyzes the gamut of LNG supply and LNG demand elasticities at play across the global market. The role of LNG supply in the 35+ import markets located outside of Europe is both fundamentally and commercially diverse. It is also prone to change.
In today’s analysis note, we consider the evolving potential of the LNG bid from gas generators operating in India’s power market.
Historically, investments in politically-favored coal generation were adequate for meeting power load growth in India. In recent years, however, strong economic activity combined with episodically higher than average temperatures have hastened the pace of load growth. Coal generation has been unable to keep pace with load despite average coal output growing by 20 GWe since 2022.
Political prioritization of coal generation, combined with regulation of investments in domestic gas production, have historically undermined utilization of India’s 25GW of gas generation capacity. Investment in India’s gas units was originally predicated on the delivery of cheap domestic natural gas supply. The gas failed to materialize, and consequently most of India’s gas units have experienced meager utilization for majority of their commercial lives. In cases of state-owned gas units, government support was largely not provided to defray the costs of global gas prices. This was in contrast to other gas demand sectors, which have consistently received pass-through mechanisms from the government to subsidize the cost of global pricing of LNG imports. IPP developers did add several gas units predicated on the economics of LNG imports. These units typically operated structurally-short gas supply positions, and managed to compete against the economics of coal generation in certain regional markets. Owing to their short gas positions, the ascent of LNG flat prices starting in late 2021 broke business model of these IPP gas units until 2023.
To shore up reserve margins during the past two years, power regulators have chosen to restore the commercial pulse of gas generation. Access to semi-liberalized power markets, which are supported by liquidity from local power distribution companies and large power consumers active in the day ahead and other forward power markets, created the necessary incentives for certain gas generators to resume production. In May 2024, under the pressure of 14% YoY power load growth, daily levels of gas generation in India jumped to a decade high of 6-8 GW equivalent.
Based on Indian government data, Balance Point Research estimates that gas generators relied on LNG imports for all of the incremental growth in May 2024 gas burns. Power trading data from IEX illustrate that spot sellers of power were able to achieve prices between $55/MWh and $75/MWh for most days during the second quarter of 2024. These power prices imply bid levels for gas generation feedstock that completely align with the outturn for LNG basis prices for spot cargoes delivered into South Asia during the same period. Indian gas generators were squarely on the margin for bids in the global gas and LNG market.
If coal generation growth continues to lag behind power load growth in India, Balance Point Research believes that power sector regulators will experience growing pressure to enable the economics underutilized gas generation capacity. This could be achieved via greater power market liberalization. It could also be accomplished via government subsidy of LNG import costs for which there is precedent in India’s gas market.
In the context of 100mtpa of LNG growth by 2028 in the global gas market, the path of Indian power generator’s LNG bid could veer in a more price-elastic or inelastic direction depending on the conditions put in place in India’s power market. Balance Point Research believes such developments deserve the attention of energy traders interested in improving their view regarding how the global gas market will solve during the years ahead.
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