GAIL feels blowback from Ukraine war

A former Gazprom subsidiary reneges on its contract, forcing the state-owned gas distributor to cut back supplies to key sectors

- SHINE JACOB

On February 24, when Vladimir Putin announced a military operation on Ukraine, few would have thought that Indian government-owned GAIL India would feel the impact. The tensions over gas supplies were essentially a Europe-Russia problem, related to the sanctions western economies imposed on Moscow. But the EU depends on Russian imports for 40 per cent of its gas stocks, an over-dependence that Russia has underlined with Kremlin-owned Gazprom cutting its supplies through the Nord Stream 1 pipeline to 20 per cent, citing maintenance issues.

Blowback from this gas crisis is finally having an impact on India, too, as Europe started drawing more gas to tide over the short supply, ahead of the winter. Earlier this month, state-run GAIL (India) has said that a former Gazprom subsidiary has invoked force majeure on long-term liquefied natural gas (LNG) contracts, resulting in the rationing of gas for fertiliser and other industries. GAIL's consumers are facing a supply cut of at least 10 per cent due to the current crisis, an issue that could impact India's signature city gas distribution (CGD) project and impact government finances by way of higher fertiliser subsidy.

GAIL's supply deal was with Gazprom Marketing and Trading Singapore (GMTS), now a subsidiary of Gazprom Germania. So far, the company has defaulted on supply of eight cargoes. The last supply GAIL received was in June. In calendar 2022, the Gazprom subsidiary was supposed to supply 2.5 million tonnes or 36 cargoes of LNG to India. This is a considerable quantity of around 17 per cent of GAIL's total long-term LNG deal of around 14.5 million tonnes per annum.