India pays for Russian LNG imports in US dollars

In January 2018, GAIL took advantage of the Russian energy giant’s inability to deliver LNG from the previously agreed Schtokman project in the Barents Sea, to renegotiate the price agreed in 2012.

India’s largest gas company GAIL (India) Ltd continues to pay for the LNG it imports from Russia’s Gazprom in US dollars and will seek exchange rate neutrality should payments be requested in any other currency, such as the euro, two sources said.

GAIL has an agreement to receive 2.5 million tons of liquefied natural gas (LNG) annually in the form of a delivery from Russia’s Gazprom. This translates to 3-4 shipments of supercooled natural gas each month.

“The contract with Gazprom provides for payments to be made in US dollars,” said a source with direct knowledge of the matter. “Payments are due between 5 and 7 days after delivery of the LNG cargo. The last payment was made on March 23 and was in US dollars.”

An LNG shipment was received on March 25 and is due for payment in early April. There is no indication that payment for this shipment is made in a currency other than the US dollar, the sources said.

“So far, the payment in US dollars continues without any problem,” said another source. “Gazprom has so far not communicated anything to GAIL about the change in the mode of payment.”

The sources said that the last payment was settled through State Bank of India (OSA) – the bank that has been used to pay for Gazprom imports since the start of supplies in June 2018.

GAIL, they said, has so far not received any written communication from Gazprom to change the currency to settle the payments.

“In case the reports of Gazprom wanting to change the payment to the euro come true, it should be examined how the currency change mentioned in the signed contract can be done,” said one of them. “Should such a request come through, GAIL will seek exchange rate neutrality by shifting payment from the US dollar to the euro. Those details will have to be worked out.”

Gazprom is reportedly looking to move away from the US currency after the Russian invasion of Ukraine. The United States and European nations have imposed sanctions on Russia for the military action, but have so far excluded energy trade from the sanctions. Russian banks continue to be on the main financial messaging system SWIFT, allowing payments for commodities bought or sold.

“As long as SWIFT is available to settle payments, there should be no problem paying for LNG imports, whether in US dollars or euros,” a source said. “The only concern that GAIL could have is the exchange rate. It is currently favorable to make payments in euros, but if it changes with the rupee strengthening against the US dollar, then GAIL would want to be protected.”

In January 2018, GAIL took advantage of the Russian energy giant’s inability to deliver LNG from the previously agreed Schtokman project in the Barents Sea, to renegotiate the price agreed in 2012. The price indexation was changed from customs-cleared crude from Japan to Brent, and oil-linked slope of the contract formula fell, and therefore the final price.

It did this because it did not insist that Gazprom deliver the promised 2.5m tonnes/year of LNG from the first year. Supplies increased with full volumes coming from the fourth year. The contract period was extended by three years to accommodate supplies not taken in the initial years, as well as to source an additional 2 million tonnes on top of the 50 million tonnes it had agreed to receive in 2012 during the contract period. 20 years old.

GAIL had signed the original agreement on August 29, 2012 with Gazprom Marketing and Trading Singapore Pte Ltd (GMTS), Singapore. The supplies in that contract were from the Schtokman project. In the renegotiated deal, Gazprom will supply LNG from the Yamal LNG project on the Arctic Peninsula.

India, which has traditionally had close ties to Moscow, has refrained from openly condemning the Russian move but has called for an end to the violence in Ukraine. It has not banned imports of Russian oil and gas, unlike several Western countries, and has instead bought distressed Russian oil at deep discounts.

Its LNG supplies from Gazprom have also continued without any hitch.

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