GAIL implements gas rationing: press

Indian state-owned gas supplier and pipeline operator GAIL has been forced to introduce a gas rationing policy for key Indian industries after Gazprom's former Singaporean arm failed to meet its LNG supply obligations, Reuters reported July 1, citing two sources familiar with the matter.

GAIL's gas rationing will target India's fertiliser and industrial sectors. Some fertiliser plants are receiving 10% less gas from GAIL than anticipated, while industrial clients have had gas purchases restricted by the "lower tolerance limit" of 10-20%. GAIL is thought to be focusing on meeting its minimum "take or pay" obligations, saving it from triggering the penalty clause in its gas supply contracts.

The upshot is that GAIL has reduced gas supplies by around 6.5mn m3/day, while GMTS's exports to GAIL usually amounted to around 8.5mn m3/yr. In addition, GAIL has downscaled its 810,000 metric tons/year petrochemical production complex in northern India to around 60% of its usual capacity, sparing gas for third-party clients. 

GAIL has a 20-year offtake agreement with Gazprom Marketing and Trading Singapore (GMTS) for 2.5mn metric tons/year of LNG. GMTS failed to ship LNG quantities contracted by GAIL earlier this month.

The business is a subsidiary of Gazprom Germania, which is technically German state-owned following Berlin's takeover in April. Gazprom ceded ownership of Gazprom Germania without a formal explanation, though it was substantially affected by contract cancellations by European clients.

GAIL has reportedly written to Gazprom Germania on several occasions to protest against the supply reductions. There is likely to be a considerable impact on gas prices, too. GAIL reportedly purchased LNG from spot markets at $38/mmBTU last month, compared to $12-$14/mmBTu price point written into its GMTS contract.