Emergency bid: GAIL inks agreement with ADNOC to secure LNG supply

Officials said the agreement represents a reworking of India's gas sourcing strategy as the country aims to aggressively source LNG from a wider list of nations

In an emergency bid to secure stable Liquefied Natural Gas (LNG) supply, state-run Gas Authority of India (GAIL) has signed an agreement with the Abu Dhabi National Oil Company (ADNOC) to expedite talks on short- and long-term sales agreements.

Signed on the sidelines of the Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC-2022), one of the world’s largest oil, gas, and energy exhibitions, the pact explores collaboration opportunities in LNG supply, decarbonisation, and future sales. The pact, signed in the presence of Petroleum Minister Hardeep Singh Puri, came after India reached out to the UAE with an eye on relieving its LNG woes in the near future, officials said.

“The agreement represents a reworking of India’s gas-sourcing strategy. The issue is being treated with urgency as the government feels India needs to quickly negotiate purchase agreements, and ensure a steady supply of natural gas going forward,” an official with the petroleum and natural gas ministry said.

Up to 55 per cent of India’s local gas demand is met through imports. On the other hand, while gas meets only 6.2 per cent of India’s energy needs, the Centre has been planning to raise this figure substantially, in order to reduce the dependence on petroleum.

The agreement with ADNOC includes parallel issues, such as the potential optimisation of LNG trading activities, the review of joint equity investments in renewables, and the monitoring of greenhouse gasses for LNG cargoes to support low-carbon LNG supplies.

ADNOC was the first LNG producer in the Middle East and has over 40 years’ experience in the LNG market. It is currently in the midst of a major expansion of its natural gas business, accelerating production to meet both domestic and international demand.

New Delhi is advocating for an aggressive gas purchase policy, and balancing sources of import, most of which have originated from Qatar in recent years, the official added.

A LNG term contract with Qatar, the biggest currently, expires this decade. Qatar and the United States — the two largest producers globally — currently supply India with LNG through multiple contracts. Third largest producer Australia mostly supplies China.

Troubled times

GAIL had been struggling to replace supply from a former trading arm of Gazprom, which has not delivered on scheduled shipments since May. Back in 2012, Gazprom’s former subsidiary, Gazprom Marketing and Trading Singapore (GMTS), had entered into a 20-year contract to supply GAIL with 2.85 million tonnes of LNG a year. Supplies under the deal had started in 2018 and the full volume was expected to be reached in 2023.

But earlier this year, GMTS got housed under Gazprom Germania GMBH, after which Gazprom gave up its ownership of the company in April without any explanation, and imposed sanctions. As the diplomatic fallout of the Ukraine war escalated, Germany seized control of Gazprom Germania in April. While officials say they are discussing the matter with Russian energy authorities, GAIL has been left without a crucial chunk of gas supplies.

“The stretched supply chains as a result of the Covid pandemic, the global marine logistics challenge, and the war in Ukraine are all  unprecedented events. But it shows we need to shelter our supply chains even more,” another official said.

Even beyond the deal, the Ukraine war has affected India’s gas supplies in an unprecedented manner. Russia was the largest exporter of natural gas globally till 2021, with nations in the European Union being the largest buyers. But the invasion of Ukraine, subsequent economic sanctions and sabre rattling over energy supply chains have led to that that gas flow fast reducing. While Russia used to supply up to 40 per cent of Europe’s gas requirement before the Ukraine invasion, it has now come down to 9 percent, according to the European Union.

As a result, more European nations have circled around on Middle Eastern gas, driving up prices. Meanwhile, domestic gas production has also stagnated in recent months. According to figures from the Petroleum Planning & Analysis Cell, net production of natural gas fell to a three-month low of 2791 million standard cubic meters.

Plans afoot

• India plans to aggressively source LNG from a wider list of nations 
• Agreement represents a reworking of India’s gas-sourcing strategy
• Up to 55% of India’s local gas demand is met through imports 
• While gas meets only 6.2% of energy needs, Centre plans to raise this figure substantially to reduce the dependence on petroleum