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 creating a shortage of feedstock for key domestic sectors.
India, which relies on long-term LNG contracts with Qatar for a significant portion of its gas needs, has seen temporary suspensions of deliveries, 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 in the city gas sector has raised concerns. CGD operators have warned that replacing contracted Qatari volumes with spot LNG at more than double the contract rate could erode CNG's price advantage and lead to customers switching to electric vehicles.
Petronet LNG Ltd, India's largest LNG importer, hasn't been able to send ships to Qatar to transport LNG due to the closure of the Strait of Hormuz, a narrow shipping route through which West Asian countries, including Qatar, export most of their oil and gas.
Additionally, Qatar has shut down LNG production at the world's largest export facility – which also supplied gas to India – after it was targeted in an Iranian drone attack.
In a filing with the stock exchange, Petronet said it had issued a force majeure notice to Qatari supplier, QatarEnergy, due to the inability to send ships.
QatarEnergy has also issued a force majeure notice due to the regional situation.
"Given the recent and ongoing war 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 said.
"Considering the prevailing security situation and the material risks to maritime navigation, the company (Petronet) has issued a force majeure notice to QatarEnergy regarding its LNG tankers, namely Disha, Raahi, and Aseem."
Petronet said it has also 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 that the reduction in supply to 60% and the restriction on spot or current market supply to zero "are likely to have a significant impact on the sector's gas availability, 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, it sought "continued visibility and guidance on gas supply to the CGD sector during the crisis period."
"Confirmation about the continuity of gas supply to the city gas sector during this 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 to below freezing point to allow for storage and transport over long distances. Petronet LNG imports such liquid gas and then regasifies it at its R-LNG terminals in Dahej, Gujarat, and Kochi, Kerala. The fuel is used for producing fertilizers, generating electricity, and as raw material for city gas entities.
QatarEnergy said, "Due to military attacks on QatarEnergy's operating facilities in Ras Laffan and Mesaieed Industrial Cities in Qatar, QatarEnergy has ceased LNG and associated product production."
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 that 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 the 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 that just 26 vessels (all types) 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 to GAIL, Indian Oil Corporation (IOC), and Bharat Petroleum Corporation 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.
Sehul Bhatt, Director, Crisil Intelligence, said that India’s liquefied natural gas (LNG) supply chain is facing disruption after Qatar, its single-largest supplier, declared force majeure on deliveries following a halt in production at its Ras Laffan facility.
As a result, Asian spot LNG prices have flared up from USD 10/MMBtu to USD 24–25/MMBtu. Qatar supplies 10–11 MTPA of LNG to India, tantamount to 45% of its imports.
Parallelly, India’s largest LNG terminal operator, has also invoked force majeure for its affected tankers after insurers pulled out of key Middle East routes, leading to choking of supplies in the Strait of Hormuz.
It has also served force majeure notices to downstream off-takers, mostly oil marketing companies and public sector utilities, leading to curtailed supplies.
If supply tightness persists, price-sensitive industrial consumers may seek alternative fuels, such as liquefied petroleum gas, furnace oil, or naphtha. The extent of this feedstock diversification will be a function of the cost-benefit math. Elevated LNG prices can also translate to costlier gas supplies to fertiliser plants. This, in turn, can increase the government’s subsidy burden.
