A former Berlin subsidiary of Russia’s Gazprom has cut off supplies to New Delhi’s state-owned natural gas company
A diplomatic dispute is brewing between India and Germany after the latter took over a former Gazprom subsidiary and halted LNG shipments to the Asian powerhouse.
The former local subsidiary of the Russian gas giant Gazprom Germania, renamed SEFE (Securing Energy for Europe), interrupted LNG supply to the Indian Gail in May, citing the sanctions imposed by Moscow after the takeover of the company by the German state. Under the sanctions, Gazprom stopped supplying gas to SEFE.
Gail had a 20-year contract with Gazprom Germania’s Singapore unit, GM&T Singapore, to supply 2.5 million tonnes of LNG per year. According to Bloomberg, citing the LNG importers association GIIGNL, the contract remained valid after Berlin took over Gazprom Germania, meaning SEFE still had to meet its obligations to Gail.
In September, the Singapore unit of SEFE said it could no longer fulfill its long-term contract with Gail and offered to pay compensation of 20% of the contract price for failed LNG deliveries. Gail CFO Rakesh Kumar Jain said last week that SEFE had canceled a total of 17 LNG shipments since May.
According to Bloomberg’s sources, India is now requiring SEFE to find alternative gas suppliers in order to meet its obligations to Gail, as the Indian company has been forced to spend much larger sums to buy gas on the spot market. It also had to cut off supply to its customers and lower production at its petrochemical plant due to the LNG shortage. The company also declined the offer of compensation for undelivered LNG because it prefers to retain the right to canceled cargoes, Reuters reported on Friday.
Bloomberg sources said Indian and German diplomats had been hired to resolve the dispute. A diplomatic solution is best for the parties, the sources say, although they noted that Gail was also consulting with lawyers about the arbitration of the contract with SEFE, which means the dispute could turn into a lawsuit. Gail is also said to be negotiating with Gazprom to buy LNG directly from the Russian company.
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