New Delhi, March 4 Qatar has halted liquefied natural gas (LNG) production following attacks on its facilities amid the ongoing West Asia conflict, disrupting supplies to India and impacting feedstock availability for key domestic sectors.
India, which relies on long-term LNG contracts with Qatar for a significant portion of its gas needs, has seen a temporary suspension of cargoes, leading to supply cuts of up to 40% for various industrial consumers and city gas distribution (CGD) companies.
While some industrial users can switch to alternative fuels, CNG retailing city gas sector has expressed serious concerns. CGD operators say replacing contracted Qatari volumes with spot LNG priced significantly higher than the contracted rate could erode CNG's price advantage and lead to a permanent shift of customers to electric vehicles.
Petronet LNG Ltd, India's largest LNG importer, has been unable to send ships to Qatar to transport LNG, as the Strait of Hormuz – a narrow shipping route through which West Asian countries, including Qatar, export most of their oil and gas – is effectively closed.
Furthermore, Qatar has shut down liquefied natural gas production at the world's largest export facility – which also supplied gas to India – following an Iranian drone attack.
In a stock exchange filing, Petronet said it has sent a force majeure notice to Qatari supplier, QatarEnergy, citing inability to send ships.
QatarEnergy has also issued a force majeure notice due to the ongoing situation, citing its inability to serve Petronet LNG.
"Given the recent and ongoing conflict in the Middle East region involving Iran and Israel, vessels are presently unable to safely transit through the Strait of Hormuz to reach Ras Laffan, QatarEnergy's loading port," Petronet stated.
"Considering the current security situation and the potential risks to maritime navigation, the company (Petronet) has issued a force majeure notice to QatarEnergy concerning its LNG tankers, Disha, Raahi, and Aseem."
Petronet has, in turn, issued corresponding force majeure notices to its downstream off-takers.
Qatar supplies 40% of the 27 million tonnes of LNG that India imports annually.
The supply cuts have also affected city gas firms, which have written to GAIL, expressing concerns about the availability of domestic gas and LNG to meet the requirements of CNG for automobiles and piped cooking gas for households.
The Association of CGD Entities (ACE) in a March 3 letter to GAIL chairman and managing director said the reduction in supply of low-priced gas to 60% and the restriction of spot or current market supply to zero "are likely to have a significant impact on gas availability to the sector, which may adversely affect priority segments."
"We request clarity and confirmation regarding the sustained availability of gas to the city gas sector so that the sector can continue to meet the Government of India's objectives for providing a reliable and sustained energy source to smaller customer segments in the remotest corners of the country," it said.
The association members remain committed to supplying energy to households, CNG customers, small industries, and commercial consumers. They seek "continued visibility and guidance on gas supply to the CGD sector during this crisis period."
"A confirmation regarding the continuity of gas supply to the city gas sector during this crisis period would be helpful," it added.
While domestically produced natural gas meets about half of the demand, India meets the rest through LNG imports.
LNG is a gas that has been cooled far below freezing point into a liquid form to allow storage and transport over long distances. Petronet LNG imports such liquid gas and then regasifies it (back to gas) at its R-LNG terminals in Dahej, Gujarat, and Kochi, Kerala. This gas is used for producing fertilizers, generating electricity, and as raw material for city gas entities.
QatarEnergy, in a statement, said, "Due to military attacks on QatarEnergy's operating facilities in Ras Laffan Industrial City and Mesaieed Industrial City, QatarEnergy has ceased production of LNG and associated products."
The United States and Israel launched military strikes on targets in Iran over the weekend. Tehran retaliated with missiles and drones aimed at Israel and countries hosting US forces, including the United Arab Emirates, Qatar, Kuwait, Bahrain, Iraq, Jordan, and Saudi Arabia.
Media reports suggest the conflict has effectively closed the Strait of Hormuz, a key conduit for global energy flows. Roughly one-third of the world's seaborne crude oil exports and about 20% of liquefied natural gas shipments transit this narrow waterway.
As much as 20.8 million barrels per day of oil and products typically transit the Strait. Over 80% of this goes to Asian markets, including India. About 20% of global LNG supply also passes through this waterway.
For India, the Strait, controlled by Iran, is a transit for roughly 50% of its crude oil imports and around 54% of its LNG supplies.
It is the transit for not just LNG from Qatar but also from the UAE.
Reports suggest just 26 vessels (all segments) traversed the Strait – down sharply from 91 on February 28 and well below February's 135 a day average – after the US/Israeli strikes on Iran rattled the region.
Petronet said it has also issued force majeure notices on gas off-takers – GAIL, Indian Oil Corporation (IOC), and Bharat PetroleumCorporation Ltd (BPCL).
"Acts of war are also excluded under Business Interruption Insurance covers taken by Petronet LNG," it said.
"The likely impact of force majeure, which is currently an ongoing event, cannot be estimated at this point in time. The company is closely monitoring the developments and will keep the stock exchanges informed of any material updates in this regard."
Petronet has a long-term contract to buy 8.5 million tonnes per annum of LNG from Qatar. Additionally, it buys Qatari LNG from the spot market as well. Besides Petronet, companies such as IOC have LNG import contracts with the UAE.
Sources said GAIL and IOC are looking at tapping the spot or current market to meet the shortfall, but prices have firmed up. LNG in the spot market is now at USD 25 per million British thermal units, roughly double the term contract rates.
