NEW DELHI: Qatar has halted liquefied natural gas (LNG) production after its facilities came under attack amid the ongoing West Asia conflict, disrupting supplies to India and squeezing feedstock availability for key domestic sectors.
India, which depends on long-term LNG contracts with Qatar for a significant share of its gas needs, has seen a temporary suspension of cargoes, leading to supply cuts up to 40 per cent for a range of industrial consumers and city gas distribution (CGD) companies.
While some industrial users can switch to alternative - though costlier - fuels, the CNG-retailing city gas sector has warned of severe stress. CGD operators said replacing contracted Qatari volumes with spot LNG priced at more than double the contracted rate could erode CNG's price advantage and result in a permanent shift of customers to electric vehicles.
Petronet LNG Ltd, India's largest LNG importer, hasn't been able to send ships to Qatar to ferry 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 all but closed.
Additionally, Qatar has shut down liquefied natural gas 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 stock exchange filing, Petronet said it has sent force majeure notice to Qatari supplier, QatarEnergy for inability to send ships.
QatarEnergy too has served a force majeure notice for inability to serve its buyer - Petronet LNG - due to hostilities in the region.
"In light of 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, the loading port of QatarEnergy," Petronet said.
"Considering the prevailing security situation and the material risks posed to maritime navigation, the company (Petronet) has issued a force majeure notice to QatarEnergy in respect of its LNG tankers, namely Disha, Raahi, and Aseem.
Petronet said it has, in turn, issued corresponding force majeure notices to its downstream off-takers.
Qatar supplies 40 per cent of the 27 million tonnes a year of LNG that India imports annually.
The supply cuts have also been effected on city gas firms, which have written to government-owned gas utility GAIL, expressing concerns over 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 per cent and 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 the 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 serve the aspirations and objectives set by the Government of India for providing a reliable and sustained energy to smaller customer segments in the remotest corners of the country," it said.
Stating that 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.
"A line of confirmation about continuity of gas supply to the city gas sector during the crisis period will be helpful," it added.
While domestically produced natural gas meets just 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 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 in Gujarat, and Kochi in Kerala. The fuel is feedstock for producing fertilisers, generating electricity and 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 in the State of Qatar, 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 per cent of liquefied natural gas shipments transit the narrow waterway.
As much as 20.8 million barrels per day of oil and products typically transit the Strait. Over 80 per cent of this goes to the Asian markets, including India. About 20 per cent of global LNG supply also passes through this narrow waterway.
For India, the Strait, controlled by Iran, is a transit for roughly 50 per cent of its crude oil imports and around 54 per cent 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 offtakers - 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 of 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 unit, roughly double the term contract rates.