Post-Gazprom, India Turns to US, Mideast LNG Supply

Gail India, India’s biggest distributor of natural gas, is banking on shipments of US LNG, and a new supply contract with a Middle East supplier, to make up for the loss of cargoes from Gazprom. The shift represents yet another impact on worldwide LNG flows in the wake of Russia's ongoing war in Ukraine.

Gail will, for the first time, bring its entire portfolio of US LNG to India this year, company officials said, as it seeks to shore up supplies to Indian customers after Germany’s Securing Energy for Europe (Sefe), which took over a Gazprom subsidiary, failed to deliver cargoes under a long-term gas supply contract.

Price sensitive India has slid from being the world's fourth-largest LNG importer in 2020, at 26.3 million tons, to the seventh largest in 2022, at 20 million tons, amid extremely bullish LNG pricing before and during the war.

US, Middle East Supplies

A five-year contract to supply 500,000 tons of US LNG to a foreign customer is ending, which will help Gail bring an additional eight cargoes to India this year, director of finance Rakesh Kumar Jain told analysts. The company has two contracts to buy a combined 5.8 million tons per year of LNG from the US, comprising around 90 standard sized cargoes. That includes 3.5 million tons from Cheniere’s Sabine Pass facility and 2.3 million tons from Cove Point.

Separately, Gail is in talks with Abu Dhabi, and other Middle Eastern LNG suppliers, including Qatar and Oman, for long term supplies, and expects "to conclude a contract shortly." It declined to give details, but industry officials expect Gail to secure 1 million -1.5 million tons/yr under the term contract.

Additional volumes from the US, and from the proposed Middle East supply contract, will help Gail partly compensate Indian customers for the loss of cargoes under a 2.5 million ton per year, 20-year supply contract from the LNG trading arm of Sefe.

Only a third of US volumes will reach India directly, and the rest will be delivered via time and destination swaps.

Impact on Gail's Numbers

The Sefe cargo diversion prompted Gail to post a significant inventory loss of 11 billion rupees (about $134 million) in the October-December quarter because it had to scramble to procure spot cargoes at high prices to make up volumes to customers.

It paid as much as $45 per million Btu for two cargoes in October but failed to sell it because Indian customers found it unaffordable. Prices slumped to around $20/MMBtu in December, Jain said. By comparison, Gazprom’s cargoes from the Sefe contract are linked at a 13.2% ratio to the Brent crude price, and cost Indian customers $10-$11/MMBtu at current crude levels, industry officials said.

Sefe's failure forced Gail to cut domestic gas sales volumes by around 8.5 million cubic meters a day. Gail reduced supply by 2.7 MMcm/d to fertilizer plants; by another 2.7 MMcm/d to industrial customers as well as cut 3 MMcm/d to the Pata petchem plant, brokerage Nomura said.

Gail continues to source 1.5-2 cargoes a quarter on a spot basis, and will need to do so until alternate supplies are secured, the brokerage said in a note.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact