The Business Times

Germany, India in escalating tussle over cancelled LNG cargoes

Published Fri, Nov 11, 2022 · 08:16 PM

A COMMERCIAL spat over natural gas has escalated to a diplomatic tussle between Berlin and New Delhi, as Europe’s energy crunch takes a growing toll on the developing world.

Diplomats have been called in to resolve a disagreement over a cut in supplies of liquefied natural gas (LNG) to India by a German state-backed company, according to anonymous sources.

Gas supplies from Germany’s Securing Energy for Europe (SEFE) to GAIL India have been disrupted since May, when Moscow’s sanctions on the German company made it impossible to source LNG cargoes from Russia. India is suggesting that SEFE source alternative supplies from its portfolio to meet contractual obligations, a source said. 

According to data from the LNG importers group GIIGNL, GAIL has a contract to receive 2.5 million tons of LNG a year until 2041. The contract was signed with SEFE, then named Gazprom Marketing & Trading (GM&T).

The global surge in natural gas costs after Russia’s invasion of Ukraine has hit price-sensitive emerging countries hard. India is paying record amounts to replace cancelled supply, and that is if it can find any. With prices soaring, some suppliers to South Asia have simply cancelled long-scheduled deliveries in favour of better yields elsewhere.

SEFE’s Singaporean unit said in September that it could not fulfill its long-term LNG contract with GAIL. The group, a former Gazprom business now under control of the German government, is paying a small penalty fee of 20 per cent of the value of the contractual shipment. This is a fraction of the value of current spot gas prices in Europe, leaving a big gap for GAIL to cover, to get replacement supplies.

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“As a result of Russian sanctions against SEFE and its subsidiaries, including SM&T and SM&T Singapore, both the SEFE group and GAIL are affected by the subsequent cessation of supplies,” a SEFE spokesperson said. “SEFE and GAIL are addressing this issue together under their contractual agreements.”

Spokespersons for GAIL, Germany’s economy and foreign ministries, and India’s foreign ministry, all declined to comment.

Finding a diplomatic solution is the aim, but pre-arbitration talks are also taking place between SEFE and GAIL, sources said. 

SEFE has cancelled 17 cargoes since May, Rakesh Kumar Jain, GAIL’s director for finance, said on an earnings call on Friday (Nov 11). BLOOMBERG

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