GAIL vs. SEFE: A $1.8 Billion Conflict Over LNG Contracts

GAIL (Gas Authority of India Limited), the state-owned gas utility of India, has filed an arbitration claim against SEFE Marketing & Trading Singapore Pte Ltd, a former unit of Russian energy giant Gazprom, seeking damages amounting to $1.817 billion. This legal action, initiated at the London Court of International Arbitration, arises from the non-supply of liquefied natural gas (LNG) cargoes under a long-term contract.

The background of this dispute is rooted in a 20-year contract signed by GAIL in 2012 with Gazprom Marketing and Singapore (GMTS), to purchase 2.85 million tonnes per annum of LNG. GMTS was then a subsidiary of Gazprom Germania, now known as SEFE. This deal was part of GAIL’s strategy to secure long-term gas supplies, with deliveries beginning in 2018 and expected to reach full volume by 2023.

However, the situation took a turn in 2022. Following Russia’s invasion of Ukraine on February 24, 2022, the West imposed sanctions on Russia. Subsequently, Gazprom relinquished ownership of its German unit, which included GMTS, leading to the formation of SEFE. This ownership change and the imposed sanctions led to a significant disruption in the supply chain. In June 2022, SEFE stopped supplying LNG to GAIL to meet its own demands, citing force majeure.

GAIL contends that the contract was a portfolio contract, meaning supplies should not be halted under any circumstances. The company argues that if there were difficulties in sourcing from Russia, the supplier was obligated to arrange the cargo from alternative sources. Despite this contention, SEFE resumed normal supplies in April 2023, but the interruption and the non-supply of LNG cargoes for a significant period led to GAIL seeking legal redress.

This case highlights the complexities and vulnerabilities in international energy contracts, especially against the backdrop of geopolitical tensions and sanctions. The outcome of this arbitration could set a precedent for similar disputes arising from contractual obligations impacted by international sanctions and geopolitical changes​​​​​​​​​​​​​​​​​​​​​​.



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