Russia’s gas war with Europe hits GAIL’s LNG deal

Russia’s gas war with Europe hits GAIL’s LNG deal

NEW DELHI: Moscow’s tit-for-tat against Germany’s takeover of Russian gas major Gazprom’s investment and holding subsidiary Gazprom Germania has hit LNG (liquefied natural gas) shipments to state-run GAIL, sending the Indian utility scurrying for alternative supplies. Sources said GM&T Singapore, a subsidiary of Gazprom’s trading arm Gazprom Marketing & Trading Ltd (GM&T) that was brought under Gazprom Germania’s fold, has not delivered five cargos under a 20-year deal signed in October 2012 for 2.5 million tonne a year of LNG.

This has put GAIL in a spot amid rising gas demand as imports meets 50% of India’s consumption. Sources said given the uncertainty over future supplies, GAIL is scouting for medium-term contracts to avoid buying costlier shipments from spot market to bridge the shortfall.

GAIL’s contract has suffered collateral damage in the war of attrition between Moscow and Europe because of intertwined business among a maze of subsidiaries floated by Gazprom for gas trading.

GAIL’s troubles can be traced back to the German energy regulator taking over Gazprom Germania, which operates gas storage and supplies industries, in April after Gazprom ejected due to sanctions on the subsidiary. In retaliation, Gazprom shut off supply from Yamal LNG facility, the main source.

GM&T Singapore initially managed supplies to GAIL from its international portfolio. But soon, industry sources said, under German trusteeship, all gas was sent to Europe as prices are much higher due to scarcity after Russian supplies were shunned.

The sources said even after paying damages under the take-or-pay clause in the GAIL contract, GM&T will still make money selling to Europe under current market conditions. Legal recourse to enforce the contract may take years and will not address Indian consumers’ immediate need for gas. There is a provision for deferment but GM&T hasn’t indicated how or when it will make up the missed cargos.

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