GAIL settles $1.8-bn claim against former Gazprom unit for $285 million

New Delhi, Jan 17 (PTI) State-owned gas utility GAIL (India) Ltd has settled a $1.817-billion claim against a former unit of Russian energy giant Gazprom for $285 million, according to a stock exchange filing.

GAIL had in December 2023 initiated legal proceedings against SEFE Marketing & Trading Singapore Pte Ltd in the London Court of International Arbitration for non-delivery of liquefied natural gas (LNG) under a long-term contract.

It sought $1.817 billion in compensation for the default in delivery of committed cargoes by SEFE.

"GAIL (India) Limited and SEFE Marketing & Trading Singapore Pte Ltd have entered into a settlement agreement dated January 15, 2025," the Indian firm said in the stock exchange filing. "The terms of the settlement agreement include payment of $285 million by SEFE Marketing & Trading Singapore to GAIL and withdrawal of arbitration proceedings before London Court of International Arbitration." The company gave no details of the settlement.

GAIL in 2012 signed a 20-year deal to buy as much as 2.85 million tonnes per annum of LNG with Russian energy giant Gazprom.

The deal was signed with Gazprom Marketing and Singapore (GMTS), which at the time was a unit of Gazprom Germania, now called Sefe. The Russian parent gave up ownership of Sefe after Western sanctions were imposed on Moscow over its invasion of Ukraine in 2022.

SEFE had stopped supplying LNG to the Indian company in June 2022 to meet its own demand.

The default in supplies came at a time when global prices of LNG (natural gas super-cooled to its liquid form to enable its transportation in ships) shot up to record highs. While the GAIL's contract provided for deliveries at a pre-agreed price, SEFE could have fetched rates at least five-times higher in the spot or current market when prices touched about USD 74 per million British thermal unit.

SEFE resumed supplies in March 2023.

GAIL sought damages for the period of non-supply.

GAIL had in 2012 signed a 20-year deal with Gazprom Marketing and Singapore (GMTS) to buy 2.85 million tonnes per annum of LNG. Supplies started in 2018 and the full volume was to reach in 2023.

GMTS had signed the deal on behalf of Gazprom. GMTS was moved to Gazprom Germania, now called SEFE. But in early April 2022, Gazprom gave up the ownership of the German unit without giving a reason and placed parts of it under Russian sanctions.

This followed the West slapping sanctions on Russia for its February 24, 2022 invasion of Ukraine.

SEFE invoked force majeure and stopped supplies to India from June 2022.

SEFE, formerly GMTS, "in its annual delivery plan and in their latest communications have maintained their alleged force majeure stance citing various reasons such as Russian sanctions on its LNG source/portfolio and mandate from German authorities (BnetzA) for ensuring energy security for Europe for their inability to deliver LNG cargoes," the then Minister of State for Petroleum and Natural Gas Rameswar Teli had told the Lok Sabha in a written reply to a question on March 23, 2023.

Under the deal, GMTS was to progressively increase supplies to GAIL. It shipped 2 million tonnes of LNG in 2021 and was to supply 2.5 million tonnes or a minimum of 36 cargoes in the calendar year 2022. The full volume of 2.85 million tonnes is to be reached in 2023.

GAIL received one cargo of LNG in June 2022 and nothing after that.

However, "while SMTS maintains its force majeure stance, as on date SMTS has informed that they shall be able to supply two cargoes (shipload) in March 2023 and two in April 2023," Teli had added on March 23, 2023.

After the Ukraine invasion, the German government took over the company and the supplies got hindered as the German government debarred the company from picking up any cargo from Russia.

GAIL believed the contract was a portfolio contract and supplies cannot be stopped in any way. If there were problems in sourcing from Russia, the supplier should have arranged for the cargo from other destinations.