Home / Industry / Energy /  Gail to purchase more spot LNG despite higher prices
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NEW DELHI : Gail (India) Ltd is looking to buy more liquified natural gas from the spot market, and is likely to shell out more than double the price of contracted gas available under long-term contracts.

The state-run gas distributor recently purchased a few LNG shipments at over $40 per metric million British thermal units (mmBtu) and may buy more at such inflated prices, said two officials in the know, seeking anonymity. Suppliers are quoting prices as high as $60 in international spot markets, said one of the officials.

Gail’s move to look for spot purchases of LNG follows a default in supplies by Russia’s Gazprom since May under a pact signed in 2012. The current spot prices are way higher than the contract prices of $15-17 per mmBtu.

The company may resort to minor supply cuts for some of its customers, and is likely to supply the expensive gas to city gas distribution and compressed natural gas (CNG) companies as retail prices in these sectors are already moving in tandem with international oil and gas prices, said the second official.

Supplies from Gazprom were stalled in May. In 2012, the two companies had signed a contract for the supply of 2.5 million tonnes of LNG annually for 20 years. Under the contract, two LNG cargoes were to be supplied to Gail every month.

Gazprom began supplies in 2018 and it was to reach full volume in 2023. This year, the company Gazprom was to supply at least 36 LNG cargoes to Gail.

The deal was signed by Gazprom Marketing and Trading Singapore (GMTS), on behalf of Gazprom. GMTS was moved to Gazprom Germania, and subsequently, in early April, the company gave up the ownership of the German unit without a reason and placed parts of it under Russian sanctions.

According to the deal, GMTS was to supply LNG to Gail from its production. However, the sanctions meant that it cannot source LNG from Russia.

On 15 September, Mint reported that to bridge the deficit, Gail has resorted to spot purchases in Qatar, the US and Australia. “The global energy markets are in such a situation that suppliers are willing to pay the penalty than honouring their long-term contracts. We are looking at all possible solutions to ensure we receive the contracted supplies," the second official added.

The supply crunch comes at a time when India’s natural gas consumption is on the rise, as the government plans to focus on a gas-based economy. In the last financial year, total consumption of gas stood at 163.06 million standard cu. m per day.

Gas currently comprises about 6.2% of the country’s primary energy mix, which the government plans to more than double to 15% by 2030. Gas prices are expected to rise further as winter arrives. “With the easing of lockdown in Chinese cities going ahead, the demand is expected to grow more. Besides, historically prices rise during the winters," said Prashant Vashisht, vice-president, Icra.

Fertilizers and CNG companies will have to go for costlier imported fuel as there is no alternative, while refineries are moving away from LNG due to high prices, he added.

Email queries to Gail did not elicit any response till press time. Responding to a query, Rajeev Jain, spokesman of the ministry of petroleum and natural gas said: “Can’t comment on commercial deals of futuristic contracts."

India is the world’s fourth-largest LNG importer, and homegrown firms have long-term contracts amounting to 22 million tonnes per annum. Gail also hedges several of its long-term gas supply contracts that helps to protect its margins in a situation of price rise.

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