A past affiliate of the Russian hydrocarbon titan Gazprom, has come forward with the assertion that sanctions imposed by Moscow have severely disrupted their ability to source supplies, resulting in a breach of their supply obligations to GAIL, India’s prominent state-owned gas utility.
The repercussions of these sanctions have led to a significant default in the supply of liquefied natural gas (LNG) to GAIL, which in retaliation filed an arbitration claim in the London Court of International Arbitration in December of the previous year. GAIL is claiming damages worth USD 1.8 billion from SEFE for their failure to deliver LNG cargoes as per their long-term contract agreement.
Recently, GAIL disclosed a regulatory filing that outlined SEFE’s ‘Statement of Defence’ presented before the arbitration panel. SEFE has rejected any liabilities other than a purportedly limited sum “properly evidence” under contract provisions. This controversy stems from a contract forged in 2012, in which GAIL had agreed to purchase up to 2.85 million tonnes per year of LNG for a span of 20 years from Gazprom.
This deal was originally struck with GMTS, a subsidiary of Gazprom Germania, now recognized as SEFE. However, a drastic turn of events occurred in the wake of Russia’s invasion of Ukraine in 2022, causing a strategic ownership shift of SEFE.
April 2022 saw Gazprom part with the German company, transferring it to a Moscow DJ without a foreign trade license. Subsequent to this change in ownership, the new shareholders directed the liquidation of Gazprom Germania. As a consequence of these developments, the company found itself sanctioned by the Russian Federation on May 11, 2022. The sanctions mandated a comprehensive and absolute supply freeze specifically targeting Gazprom Germania, then under the administration of the German Federal Network Agency, rendering it the singular energy supplier in Germany to be sanctioned in such a manner.
Such drastic measures meant the severance of all LNG provisions from Russia to SEFE, resulting in the immediate cessation of LNG supplies to the Indian conglomerate as of June 2022. GAIL has strongly contested this move, arguing that the contract was designed to be a ‘portfolio contract’, and as such, supplies are non-terminable.
In response to the supply cessation, GAIL has pursued legal action against “SEFE Marketing & Trading Singapore Pte Ltd (formerly Gazprom Marketing and Trading Singapore Pte Ltd)”, seeking a financial remedy up to USD 1.817 billion, as well as alternative non-monetary relief. SEFE, in its defense, states that the sudden and complete halt of active supply contracts has forced the company to drastically revise its business approach drastically.
The circumstances, described by SEFE as both “unprecedented” and “precarious”, called for immediate action, citing force majeure as a justification for their inability to fulfill contracts. The tumultuous events eventually led to SEFE transitioning to become entirely state-owned by the Federal Republic of Germany on November 14, 2022.
Despite the interruption in supplies, SEFE recommenced LNG deliveries to GAIL by March of the following year. If the 2012 agreement had continued unimpeded, the full volume of the supply deal would have been realized by 2023. In this complex tangle of geopolitics and energy commerce, GAIL and SEFE are awaiting the outcome of arbitration to resolve their LNG supply contract dispute.
