Explained: Why India purchased the most expensive LNG shipment in history

Is India going the Europe way? Is it struggling to meet gas needs in the country? On Monday, GAIL India, the largest gas distributor in the country, purchased some of the nation’s most expensive liquefied natural gas (LNG) shipments, as per a report in Bloomberg. It reported that the New Delhi-based company bought three LNG cargoes last week for over $40 per million British thermal units — record prices for any LNG cargo to be delivered to India, more than doubling the prices paid last year. We take a closer look at what prompted GAIL to buy LNG at such record prices and what happens next. Record prices for LNG Bloomberg reported that GAIL India Ltd bought several LNG cargoes for delivery between October and November at more than double the price it paid around this time last year. There are multiple reasons for the record prices paid for the LNG supplies — one being that Gazprom Marketing and Trading Singapore (GMTS), now a subsidiary of Gazprom Germania, has stopped supply, redirecting them to Europe instead ahead of winter. In 2012, GAIL had agreed to a 20-year deal with Russia’s Gazprom for annual purchases of LNG. Supplies under the contract began in 2018. Gazprom Marketing and Singapore (GMTS) had signed the deal on behalf of Gazprom. At the time, GMTS was a unit of Gazprom Germania, but the Russian parent gave up ownership of Gazprom Germania after Western sanctions over Russia’s invasion of Ukraine. Now, the plant, renamed as Securing Energy for Europe, told GAIL that it no longer had supplies for India. According to Business Insider, GAIL attempted negotiation with the plant last month but no new deal has been announced yet. According to the deal, GMTS was to supply 2.5 million tonnes or a minimum of 36 cargoes of LNG to GAIL during the calendar year 2022. However, GAIL received one cargo of LNG in June and nothing after that. Rationing of gas? Owing to the shortage of LNG supplies from Gazprom, GAIL has started gas rationing, cutting supplies to fertiliser and industrial clients, reported Reuters. GAIL, which operates India’s largest gas pipeline network, has cut supplies to some fertiliser plants by 10 per cent and restricted gas sales to industrial clients to the lower tolerance limit of 10-20%, the sources told Reuters. Moreover, the company is operating its petrochemical complex at Pata in northern India at about 60 per cent capacity to save gas for other clients. What is GAIL planning next? In an effort to mitigate the gas shortage, GAIL is looking to prepone the supply of gas from the US. GAIL Director (Finance) R K Jain is scouting in the United States and Middle East markets for short, medium and long-term gas supplies to not just make up for the GMTS volumes but also the incremental demand for gas in the country. Besides this, GAIL has taken up the issue with GMTS as well as initiated discussions at government-to-government level. Traditionally, India’s sources of gas India include Australia, Saudi Arabia, UAE, the US and Russia. Also read: Russia-Ukraine conflict: A look at how Moscow's oil flows from Berlin to Beijing Europe’s gas crisis The current situation of gas supplies being curtailed to India stems from the Russia-Ukraine war and Europe’s dependency on Russia for gas. Prior to the war, Russia supplied about 40 per cent of the European Union’s gas needs. However, since the war and the consequent sanctions imposed, Russia has cut supplies, leaving European governments scrambling to find alternative energy resources. European politicians say Moscow is using energy as weapon and has warned that a harsh winter awaits its citizens. According to energy expert Llewellyn King, the end of this year for Europe is likely to be “its worst winter since the one at the end of World War II, from 1944 to 1945.” The gas shortage means that Europe will likely face a very cold winter. And that’s not all. The European economy — already reeling from the after-effects of the COVID-19 pandemic and the war in Ukraine — will likely be pushed to the “brink of a recession”, as the Wall Street Journal (WSJ) writes. As the WSJ explains, Europe’s economy has long relied on steel makers, chemical producers, and car manufacturers — all energy-intensive industries. With the shortage of cheap Russian natural gas, power has become more expensive and as a result, some industries are forced to close or reduce their hours of work. To cope with the limited supply of natural gas, European governments are aiming to reduce gas consumption. Europeans have reduced their consumption of natural gas-related resources by over 10 per cent in August (as compared to previous years) alone. However, it’s left to be seen how Europe deals with the situation come November when winter sets in. With inputs from agencies Read all the Latest News, Trending News, Cricket News, Bollywood News, India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.