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Former Gazprom subsidiary pays ‘meagre’

penalty for LNG delivery defaults

PIPELINES & INDIA’S state-owned GAIL (India) Ltd (GAIL) was $12.00-14.00/per mmBtu, according to the
TRANSPORT is being paid a “meagre” penalty fee by a former official, who added that Gazprom Marketing is
subsidiary of Russia’s Gazprom for failing to paying 20% for the default. “LNG in spot market
GAIL is being paid a deliver contracted cargoes of LNG, an Indian is being sold at triple the long-term price and so
"meagre" penalty fee government official has stated, according to the anyone would be happy to pay the meagre pen-
for Gazprom's failure to Press Trust of India (PTI). alty and yet make a huge profit,” PTI quoted the
deliver an LNG cargo. Gazprom Marketing and Trading, a Singa- official as saying.
pore-based former subsidiary of Russia’s Gaz- Alternative supplies on the spot market are
prom, began to default on LNG deliveries to costing GAIL three times the price of the Gaz-
GAIL in June, citing difficulty in sourcing the prom contract, prompting GAIL to reduce
LNG due to international sanctions resulting supplies to users by about 10% and look for
from Russia’s invasion of Ukraine. The company alternative sources of supply, particularly from
is now known as SEFE Marketing and Trading. the US.
“The contract provides for a penalty of 20% Gazprom Marketing was moved to Gazprom
of the agreed price in case of a default by the Germania in early April when international
supplier,” said the official, who asked not to be sanctions against Russia began to kick in. Gaz-
identified. “[Gazprom Marketing] is paying that prom then gave up ownership of its German sub-
penalty to absolve itself of all contractual liabili- sidiary without giving a reason and placed parts
ties,” he said, according to PTI. of it under Russian sanctions, media reports said.
GAIL’s 20-year contract called for Gazprom According to Bloomberg, the move by Gaz-
to deliver 2mn tonnes in 2021, and increase this prom is an example of energy suppliers exercis-
to 2.5mn tonnes during 2022. A full volume of ing cancellation clauses in long-term contracts
2.85mn tonnes was set for 2023, continuing for to free up shipments that are then sold on the
the life of the contract. Shipments during 2022 lucrative spot market. The strategy is becoming
were expected to number around 40 and reach popular among suppliers because spot prices are
46 during 2023. far higher than the prices agreed under the long-
The price of LNG under the contracted price term contracts. ™

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