Price hikes in India, China will boost gas imports

The recent moves by both India and China and India to raise the administered prices of domestically produced gas will pave the way for increased imports of liquefied natural gas (LNG), as the two nations try to ensure they can meet their rapidly increasing demand for the fuel.

Gas prices in both countries had so far been artificially kept at levels well below globally traded LNG costs, meaning either LNG importers suffered a loss or local LNG users had to pay a big premium over domestic prices.

India last week nearly doubled the price of gas from around $4.20 per million British thermal units (mmBtu) to a pricing formula that will bring prices to around $8.40 per mmBtu from 1 April 2014.

China made a more modest reform, increasing non-residential natural gas prices by 15 per cent - but prices will be higher at up to $10-$12 per mmBtu in many coastal provinces.

Chinese and Indian gas demand is expected to soar in the coming decade, driven by growing energy demand and efforts by China in particular to increase the amount of cleaner burning natural gas in its energy mix.

Higher gas prices will make LNG imports more attractive and provide incentives for domestic gas developments.

Spot prices for LNG into China are around $14.50 per mmBtu, while India's gas imports are at $13-14 per mmBtu.

India imported 15.17 million tonnes of LNG in 2012, which is expected to rise to 50 million tonnes by 2020, while demand in China, which bought 14.7 of LNG last year, is expected to hit 60 million tonnes by 2020.

Within days of the gas price hike, Mumbai-based Hiranandani group firm H-Energy called for bids from EPC contractors for building an 8 million tonnes-per-year LNG terminal in Maharashtra state.