Russia defaults on LNG supplies to India

Russia has defaulted on the supply of at least 5 cargoes or shiploads of LNG to India after its retaliatory sanctions hit one of the companies that supply gas to India, sources said.

India’s largest gas firm GAIL has a long-term deal to import 2.85 million tonnes of liquefied natural gas (LNG) per annum from a Singapore-based unit of Russian gas producer Gazprom.

The company has since June defaulted on the supply of 5 cargoes of LNG under that contract citing difficulty in sourcing gas due to sanctions, two sources briefed on the matter said.

While the contract provides for making up of the volumes not supplied later, the Russian firm has so far nor indicated how and when it will make up for the lost volumes.

Sources said Gazprom has told GAIL that it will from hereon supply LNG on a best endeavour basis.

GAIL is now scouting for alternatives including tying up supplies from other sources in the U.S. and West Asia.

Moscow has in recent months imposed sanctions on 31 companies, including the owner of the Polish part of the Yamal pipeline that carries Russian gas to Europe, as well as the former German unit of Gazprom.

The move was aimed at cutting off Russian gas supplies to the sanctioned entities, which were largely based in countries that have imposed sanctions on Russia in response to its invasion of Ukraine.

The companies sanctioned include Polish pipeline owner EuRoPol Gaz, Gazprom Germania and the Gazprom subsidiaries in Austria, Belgium, Bulgaria, Czechia, France, Germany, Italy, Hungary, Poland, Romania, Slovakia, Switzerland, U.K., as well as the U.S. and Singapore.

GAIL has a contract with Gazprom Marketing & Trading Singapore. But the ownership of this company was reorganised and it was now under Gazprom Germania.

Since the sanctioned entities either do not have access or limited access to Russian gas, they are unable to fulfil their commitment to customers, sources said.

GAIL, they said, is exploring legal options to enforce the contract.

Previously, Gazprom made minor adjustments such as splitting shipments and rescheduling one cargo that was supposed to be delivered in May. But now it has defaulted on supply of 5 cargoes, including two in July.

Under the deal, Gazprom is progressively increasing supplies to GAIL. It shipped 2 million tonnes of LNG in 2021 and is to supply 2.5 million tonnes in 2022. The full volume of 2.85 million tonnes is to be reached in 2023.

GAIL expected Gazprom to supply about 40 LNG shipments in 2022, and a full contracted volume of 46 cargoes in 2023, under its term deal.

Sources said the Gazprom unit hasn’t provided a firm schedule for the supply of gas during the rest of the year and the situation could possibly be salvaged through diplomatic channels.

The U.S. and European nations have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on February 24. Some western oil firms have announced exit from Russian projects and Indian firms are being considered a natural candidate to join in.

India has raised oil imports from Russia after the Ukraine war despite criticism from the west and continues to engage with Moscow for business.