NEW DELHI, Jan 17: GAIL (India) Ltd, a state-owned gas utility, has resolved a claim worth USD 1.817 billion against a former subsidiary of Gazprom, the Russian energy giant, settling for USD 285 million, as reported in a stock exchange announcement.
In December 2023, GAIL initiated legal action against SEFE Marketing & Trading Singapore Pte Ltd through the London Court of International Arbitration due to non-delivery of liquefied natural gas (LNG) as stipulated in a long-term contract.
They sought compensation totaling USD 1.817 billion for the failure to deliver the agreed quantities of LNG by SEFE.
“GAIL (India) Limited and SEFE Marketing & Trading Singapore Pte Ltd have entered into a settlement agreement dated January 15, 2025,” GAIL stated in its stock exchange filing. “The settlement terms involve SEFE paying USD 285 million to GAIL and the retraction of arbitration proceedings with the London Court of International Arbitration.”
Details regarding the settlement remain undisclosed.
In 2012, GAIL entered a 20-year agreement to purchase up to 2.85 million tonnes per annum of LNG from Gazprom.
This contract was established with Gazprom Marketing and Singapore (GMTS), a former unit of Gazprom Germania, now known as SEFE. Following the imposition of Western sanctions on Russia after the 2022 invasion of Ukraine, Gazprom relinquished its ownership of SEFE.
SEFE ceased LNG supplies to GAIL in June 2022, citing its own demand pressures.
This disruption occurred amidst a surge in global LNG prices, which reached record highs. While GAIL had a contract with fixed prices, SEFE could have sold at rates significantly higher on the spot market, which peaked around USD 74 per million British thermal units.
SEFE resumed LNG deliveries in March 2023.
GAIL sought damages for the duration of the supply interruption.
The long-term agreement signed in 2012 with GMTS commenced deliveries in 2018, with the full contracted volume expected to be reached in 2023.
GMTS negotiated the deal on behalf of Gazprom but was later assigned to Gazprom Germania, now SEFE. In early April 2022, Gazprom divested ownership of the German entity, partially due to sanctions imposed following the February 2022 military actions in Ukraine.
SEFE declared force majeure in June 2022, halting supplies to India.
According to communications from SEFE, they attributed their inability to deliver LNG cargoes to various factors, including sanctions on LNG sources and mandates from German authorities regarding energy security in Europe, as noted by Minister of State for Petroleum and Natural Gas, Rameswar Teli, in a Lok Sabha session on March 23, 2023.
Under the original agreement, GMTS was slated to gradually increase LNG deliveries to GAIL, ultimately supplying 2.85 million tonnes annually by 2023. In 2021, GMTS delivered 2 million tonnes and planned to provide a minimum of 36 cargoes in 2022, including 2.5 million tonnes.
GAIL only received one LNG shipment in June 2022 and none thereafter.
Despite maintaining its force majeure claim, SEFE informed that it would be capable of supplying two cargoes in March and two in April 2023, as mentioned by Teli.
In the wake of the Ukraine crisis, the German government took control of SEFE, which curtailed supplies since the company was prevented from accepting shipments from Russian sources.
GAIL maintained that the contract was a portfolio agreement that shouldn’t be interrupted. If sourcing issues arose, SEFE was expected to secure deliveries from alternative sources. (PTI)