The Indian energy giant GAIL Ltd is forced to reduce gas supplies in the country as Germany has started diverting the contracted volumes of Yamal LNG. Russia supplies natural gas only in the form of LNG to India. GAIL has a long-term supply contract to receive 2.5 million tonnes per annum of LNG for 20 years from Yamal LNG. However, India does not buy it directly from Yamal LNG and goes through Russian Gas major Gazprom.
On behalf of Gazprom, the buyer and supplier was Gazprom Marketing and Trading Singapore (GM&T Singapore), which the German government took control of in early April. Judging by the data of the EU’s navigation portals and monitoring platforms, the volumes from the Yamal LNG project may be going to Germany, where supplies of Russian pipeline gas have been reduced due to the Nord Stream turbine issue.
“As per the contract, LNG would be supplied from Gazprom’s global LNG portfolio. However, GMTS now being under German control, the LNG supply is likely getting re-routed to Germany, following reduced gas supply to Germany from Russia,” says Raja Arun Reddy, Oil & Gas Senior Analyst, GlobalData.
GAIL begins cutting gas supplies to customers
“Failure of GMTS to deliver LNG to GAIL has hit natural gas supplies to the industrial consumers in India, especially fertilizer and petrochemical plants,” says Raja Arun Reddy.
As per Reuters, deliveries to fertilizer plants have already decreased by 10%, and to other industrial consumers by 10-20%. Moreover, GAIL uses only 60% of its petrochemical complex in northern India.
Compensation – a bit too less
Novatek, the parent of Yamal LNG, in a statement, said that LNG would be delivered free of charge at a transhipment point in Western Europe for further delivery to the markets of the Asia-Pacific region, mainly to India.
But as per Reuter, GMTS informed the Indian company that they would not be able to fulfil their contractual obligations.
The problem is not just limited to missed deliveries. GAIL buys Yamal LNG at a price of up to $500 per thousand cubic meters, while gas costs $1,350 on the market now.
“We don’t know where else we can cut consumption… Indian consumers cannot afford gas at the market price,” the source told Reuters. According to him, GAIL constantly writes to GMTS about the need to fulfil contractual obligations. Their conditions are such that it is more profitable for a trader to pay a fine and resell to Europe, the source of the agency added.
As per the GlobalData analyst, the “price of gas supplied to Indian city gas distribution companies by GAIL has increased and is currently 3.5 times that these companies paid to GAIL towards the end of March 2022. Piped natural gas supplied to domestic consumers is also expected to increase. GAIL is unlikely to be able to do much about the supply default, as GMTS apparently is ready to pay the penalty for the missed cargoes as per the contract. However, the penalty that GAIL would receive from GMTS would be too less to compensate for the price that GAIL would be paying to purchase LNG in the spot market.”
The formula with oil indexation will determine the price, states Novatek. So, Germany may benefit from it as it is not paying the market price.
On legal recourse, Raja Arjun Reddy says, “GAIL could take legal action against GMTS for not honouring the LNG supply contract. However, it might take years for such legal battle to resolve and would not address the issue of current gas shortage in India.”
And there is a question of sanctions
At the end of May, the Russian government imposed counter-sanctions on Gazprom Germania and banned transactions with the German company and its subsidiaries. However, Prime Minister Mikhail Mishustin made exceptions for the supply of Yamal LNG for 90 days until the end of August.
It is corroborated by Novatek. “Yamal LNG reported that the company is currently fully fulfilling its obligations to supply LNG to all counterparties, including GM&T Singapore,” notes Novatek.
This may be a silver lining for India. After August, may be free to sign the contract with Gazprom or Novatek directly.
Indian Shipment are heading to Germany till then
Russian Eurasia Daily, after analyzing the navigation portals Marinetraffic and Vesselfinder, platforms GIE and ENTSOG, writes that Yamal LNG may be sent to Germany, which is experiencing a gas shortage, to create reserves for the winter.
For example, Novatek uses a terminal in Zeebrugge, Belgium, to reload LNG from ice-class tankers to conventional ones. In June, six tankers that arrived from Yamal unloaded there, and the same number of gas carriers left the terminal for China. In July, four large-capacity tankers and three small-capacity tankers arrived in Zeebrugge, but no more than one cargo could be taken from the terminal. The storage tanks can hold 112 million cubic meters – a little more than the capacity of one tanker.
As a result, up to 380 million cubic meters could be delivered to Belgium, which was then fed into the German gas transmission system. According to ENTSOG data, gas flows between the countries in June-July amount to about 80 million cubic meters per day. At the same time, the supply of gas from the terminal in Zeebrugge to the Belgian GTS increased in July from 35 to 38 million cubic meters per day.
Moreover, the Gate terminal is located in Rotterdam, the Netherlands, where the German energy giant and Germany’s largest importer Uniper has 1 billion cubic meters booked annually. Two cargoes from Yamal LNG arrived there in July.
Another indication that the German companies that keep the Yamal gas for India are also actively pumping fuel into the Reden and Yemgum storage facilities, which Astora manages, also owned by Gazprom Germania. Daily deliveries average 35 million cubic meters.
In mid-June, the German government announced that it had given Gazprom Germania a loan of 10 billion euros to keep the company viable and provide it with gas reserves.
It is difficult to say that Gazprom Marketing and Trading Singapore is not fully fulfilling the contract with Indian Gail. For example, on June 27, the Energy Integrity tanker chartered by a trader delivered cargo to the Indian Dahej from the Cameroonian terminal Hilli Episeyo, where it booked 1.2 million tons of LNG per year on behalf of Gazprom until 2026. However, apparently, all deliveries to India are carried out on a residual basis.