India’s largest gas company GAIL (India) Limited will continue to pay for the liquefied natural gas (LNG) it imports from Russia’s Gazprom in US dollars and will seek exchange rate neutrality in the event that payments in another currency such as the euro are requested, two sources said. †
GAIL has a deal to receive 2.5 million tons of LNG annually based on supply from Russia’s Gazprom. This translates into 3 to 4 loads or shiploads of super-cooled natural gas per month.
“The contract with Gazprom provides for payments in US dollars,” said a source with direct knowledge of the matter.
“Payments are due 5-7 days after delivery of the LNG cargo. The final payment was made on March 23, which was in US dollars.” An LNG shipload was received on March 25 and payment will be made in early April. There is no indication that payment for this cargo will be in a currency other than the US dollar, sources said.
“So far the payment in US dollars is going through without any problem,” said another source. “Gazprom has so far not communicated to GAIL about a change in payment method.” Sources said the final payment was settled through the State Bank of India (SBI) – the bank used to pay for Gazprom’s imports since deliveries began in June 2018.
GAIL, they said, has so far received no written notice from Gazprom for a change in the currency used to settle the payments.
“If the reports that Gazprom wants to switch to the euro come true, then how to implement the currency conversion mentioned in the signed contract should be examined,” said one of them. “If such a request comes, GAIL will pursue exchange rate neutrality when switching payment to the euro from the US dollar. Those details will have to be worked out.”
Gazprom would like to phase out the US currency after the Russian invasion of Ukraine. The US and European countries have imposed sanctions on Russia for the military action, but have so far excluded energy trade from the sanctions. Russian banks continue to use the main SWIFT financial messaging system, 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 GAIL might have is the exchange rate. Currently it is beneficial to make payments in euros, but if it changes as the rupee gains strength against the US dollar, GAIL would want to be protected.”
GAIL had taken advantage of the Russian energy giant’s inability to supply LNG from the previously agreed Schtokman project in the Barents Sea in January 2018, to renegotiate the price agreed in 2012. oil-bound slope of the contract formula lowered, and with it the final price.
India, which has long had close ties with Moscow, has declined to outright condemn the Russian action, but has called for an end to the violence in Ukraine. It has not banned the import of Russian oil and gas, unlike several Western countries, and has instead purchased ailing Russian oil at huge discounts.
Gazprom’s LNG deliveries also continued without any hindrance.