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Why India Bought the Most Expensive LNG Cargo in History

Is India going in the direction of Europe? Is it struggling to meet the country’s gas needs?

On Monday, GAIL India, the country’s largest gas distributor, purchased some of the country’s most expensive liquefied natural gas (LNG) shipments, according to a report in Bloomberg.

He reported that the New Delhi-based company purchased three LNG shipments last week for more than $40 per million British thermal units – record prices for any LNG shipment to be delivered to India, more than double the prices paid last year.

We take a closer look at what prompted GAIL to buy LNG at such record high prices and what happens next.

Record price for LNG

Bloomberg reported that GAIL India Ltd purchased several LNG shipments for delivery between October and November at more than double the price it paid at this time last year.

The record prices paid for LNG supplies can be explained by several reasons, one being that Gazprom Marketing and Trading Singapore (GMTS), now a subsidiary of Gazprom Germania, halted supplies, redirecting them to Europe rather before Winter.

In 2012, GAIL concluded a 20-year agreement with Russia’s Gazprom for annual LNG purchases. Supplies under the contract started in 2018. Gazprom Marketing and Singapore (GMTS) had signed the agreement on behalf of Gazprom.

At the time, GMTS was a unit of Gazprom Germania, but the Russian parent company relinquished ownership of Gazprom Germania after Western sanctions following the Russian invasion of Ukraine.

Now the plant, renamed Securing Energy for Europe, has told GAIL it no longer has supplies for India.

According Business InternGAIL attempted to negotiate with the factory last month, but no new agreement has yet been announced.

According to the agreement, GMTS was to supply 2.5 million tonnes or a minimum of 36 LNG shipments to GAIL in calendar year 2022.

However, GAIL received a shipment of LNG in June and nothing thereafter.

Gas rationing?

Due to shortage of LNG supply from Gazprom, GAIL began gas rationing, cutting off supply to fertilizers and industrial customers, reported Reuters.

GAIL, which operates India’s largest gas pipeline network, has cut supply to some fertilizer plants by 10% and limited gas sales to industrial customers to the lower tolerance limit of 10-20%, the sources said. Reuters.

Additionally, the company is operating its Pata petrochemical complex in northern India at around 60% capacity to save gas for other customers.

What is GAIL planning for the future?

In an effort to alleviate the gas shortage, GAIL seeks to prioritize gas supplies from the United States.

GAIL (Finance) Director RK Jain is looking to the US and Middle East markets for short, medium and long term gas supplies to not only offset GMTS volumes but also the additional gas demand in the country.

In addition to this, GAIL has taken up the issue with GMTS and initiated discussions at the government-to-government level.

Traditionally, India’s gas sources include Australia, Saudi Arabia, UAE, USA and Russia.

Also read: Russian-Ukrainian conflict: A look at how Moscow’s oil flows from Berlin to Beijing

The gas crisis in Europe

The current situation of reduced gas supplies to India stems from the Russian-Ukrainian war and Europe’s dependence on Russia for gas.

Before the war, Russia supplied about 40% of the gas needs of the European Union. However, since the war and the resulting sanctions imposed, Russia has cut supplies, leaving European governments scrambling to find alternative energy resources.

European politicians say Moscow is using energy as a weapon and have warned that a harsh winter awaits its citizens.

According to energy expert Llewellyn King, the end of this year for Europe will probably be “its worst winter since that of the end of the Second World War, 1944 to 1945”.

The gas shortage means that Europe is likely to face a very cold winter. And that’s not all. Europe’s economy – already reeling from the aftermath of the COVID-19 pandemic and the war in Ukraine – is likely to be pushed to “the brink of recession”, as the the wall street journal (WSJ) writes.

As the WSJ explains, the European economy has long relied on steelmakers, chemical producers and car manufacturers, all energy-intensive sectors. With the shortage of cheap Russian natural gas, electricity has become more expensive and as a result some industries are forced to shut down or reduce working hours.

To cope with the limited supply of natural gas, European governments aim to reduce gas consumption. Europeans reduced their consumption of natural gas resources by more than 10% in August alone (compared to previous years). However, it remains to be seen how Europe handles the situation in November when winter sets in.

With contributions from agencies

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