Shares of GAIL India were under pressure in the morning trade on August 2 after media reports said that Russia’s Gazprom had invoked force majeure on its long-term liquefied natural gas (LNG) contracts with the company.
The force majeure was invoked after Gazprom failed to meet delivery of certain LNG cargoes to GAIL from Singapore instead of diverting those cargoes for delivery in Europe, where the Russian company is getting higher prices for its gas in the spot market, various media reports said.
The lack of natural gas supply from Gazprom has put GAIL in a quandary as it will now have to secure alternative supplies from the international spot market, where prices are nearly three times the long-term contract rates.
Reuters reported on August 1 that the state-owned gas trading company cut down supply of LNG to fertiliser companies and industries in a bid to ration the critical fuel.
While GAIL can purchase LNG from the spot market, a CNBC-TV18 report said that the company’s clients were unwilling to pay the higher prices. Power companies in particular are unlikely to purchase expensive LNG from GAIL, the report said.
Investors fear the unfolding crisis could sharply hit GAIL India’s natural gas volumes and earnings in the coming quarters as it becomes a collateral damage in the brinkmanship between Europe and Russia.
The diversion of LNG supplies by the Singapore unit of Gazprom, which is under the control of the German government after Russia’s invasion of Ukraine, has come as a shocker to the international markets.
Europe is desperate to secure LNG supplies after Russia drastically choked natural gas supplies to the continent in retaliation to the various sanctions imposed on the country by the European Union and the US.
At 10.42 am, shares of GAIL India were down 2.6 percent at Rs 143.50 on the National Stock Exchange.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.