GAIL hunts for gas as Russia’s Gazprom turns off tap
GAIL India Ltd is looking for options to source liquefied natural gas (LNG) after Russian giant Gazprom halted supplies in May, three officials aware of the plans said. Efforts are underway to resume supplies, but no headway has been made, the official said, seeking anonymity. To bridge the deficit, state-run GAIL has also resorted to spot purchases in Qatar, the US and Australia, among others. The default in Gazprom’s contracted supplies has caused disquiet among stakeholders in the Indian energy sector. “Whenever there is a supply crunch, GAIL has to resort to minor supply cuts to its customers and also buy from the spot. They are just trying to manage. In cases where GAIL has back-to-back contracts, GAIL cannot cut supplies or else GAIL would have to pay the penalty here. So, wherever it cannot lower the supplies, there it is supplying after buying from the spot,” said one of the three officials, all of whom spoke on the condition of anonymity. Supplies from Gazprom have been stalled since May. In 2012, GAIL signed a contract with Gazprom Marketing and Trading Singapore, a subsidiary of Gazprom for the supply 2.5 million tonnes of liquefied natural gas annually for 20 years. Under the contract, two cargoes of LNG are to be supplied every month. Amid the crunch, India is also looking at diversifying its sources of gas and is looking for long-term contracts, the official cited above said. “National gas companies are working with different players…the US, Qatar, Mozambique. We are trying to get supplies from wherever possible at the best-suited prices. Nobody is willing to commit big long-term volumes before 2-3 years’ time,” the official added. Traditional sources of gas for India include Australia, Saudi Arabia, UAE, the US and Russia. GAIL has long-term contracts for around 14 million tonnes of LNG, and the Gazprom contract of 2.5 million tonnes accounts for 17.85% of its total contracted supplies. “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,” a second official said. Noting that the Russian company’s unit Gazprom Germania falls under German jurisdiction, the official said that given the coming winter, Germany is looking to cater to its domestic demand. “The contract is still valid. While today there is high demand in the gas market, over the medium and long term, the demand will cool, and the largest taker will be India,” a third official said. GAIL is looking at all options to buy gas at an affordable price, the official said, adding the problem is not availability but the price. Queries sent to GAIL, Gazprom, the ministry of petroleum and natural gas, the ministry of external affairs and the Russian embassy in Delhi remained unanswered till press time.
Oil Prices Are On Track For A Third Consecutive Week Of Losses
Crude oil is about to book its third consecutive week of losses despite several spikes as worry about demand remains stronger than worry about supply. A strong dollar also pressured oil prices as it made the commodity less affordable for buyers in the dollar-dominated oil market. At the time of writing, Brent crude was trading at $91.24 per barrel, with West Texas Intermediate at $85.39 per barrel. Recession fears, however, remain the biggest reason behind the downward trend. The World Bank on Thursday warned that the risk of a global recession had risen recently, noting the rush by central banks to raise interest rates. According to the WB, if the rate hikes were done too fast, this would push the global economy into a slowdown. “Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades — a trend that is likely to continue well into next year,” the World Bank said. “Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” the WB’s president, David Malpass commented. A recession would damage oil demand just as it would damage pretty much everything else as well, which would help tame inflation but at a very high cost. Alternatives, however, are scarce. The European Union has reiterated its dedication to sanctions on Russia, with an embargo on Russian crude set to come into effect in three months and an embargo on fuels coming into effect in five. This is bound to affect prices for both crude and fuels, especially diesel as global diesel stocks are tighter than usual at the moment. Until the embargos come into effect, however, the downward pressure on prices will remain substantial, keeping a lid on benchmarks.