High cost of energy resources adversely impacting India’s energy demand

India is showing early signs of cut in demand for coal, LNG and crude owing to consistently rising high prices, says a Reuters report. There are early signs that India’s demand for coal and liquefied natural gas (LNG) is struggling, and although crude oil demand looks solid in recent months, there are important caveats at work.

India is the world’s second-biggest importer of coal behind China, and imports in January are estimated by commodity consultants, Kpler, to have dropped to the lowest level since June 2020, when the country was battling the worst of the initial outbreak of the coronavirus pandemic.

India imported 12.4 million tonnes of all grades of coal in January, according to Kpler, down from 12.6 million in December and 16.1 million in November. Part of the reason behind weakness in January would be lack of available cargoes from Indonesia, after Jakarta imposed a month-long ban on exports in order to ensure domestic supplies.

But sharply rising prices will also have curbed India’s enthusiasm for imports, with the benchmark thermal coal price, Australia’s Newcastle Index jumping from a recent low of $ 153.10 a tonne in mid-November to a record high of $ 261.11 a tonne in the week to Jan. 28.

Australia has become India’s biggest coal supplier after China banned imports from the country amid a political dispute with Canberra, which in turn led Chinese buyers to snap up more Indonesian cargoes, depriving India of supplies from the Southeast Asian nation.

Looking specifically at thermal coal, India’s imports of the power generation fuel from Australia were just 764,679 tonnes in January, down from 1.1 million in December and 2.1 million in November.

India’s LNG imports are also trending lower, with Kpler estimating January arrivals of 1.73 million tonnes, down from 1.91 million in December and 1.85 million in January 2021.

The one area of strength in India’s energy imports would appear to be crude oil, with Kpler estimating January arrivals at 4.59 million barrels per day (bpd), and Refinitiv Oil Research even more bullish at 5.04 million bpd, which if confirmed would be a record month.

Imports are up from 4.65 million bpd in December and 4.48 million bpd in November, according to Refinitiv, as India’s economy recovers from pandemic lockdowns and refiners bring more capacity online.

Lower product shipments from China have boosted margins for other Asian refiners, but if profits were to come under pressure from increased Chinese exports, then some of India’s current crude demand may be at risk. It’s also worth noting India’s crude oil is generally bought six weeks to two months prior to delivery, so January’s imports are more reflective of the price two months ago, when Brent futures were around $68 a barrel, well below the $90 a barrel it is hovering around currently.

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