India’s largest gas utility GAIL (India) Ltd continues to pay for the LNG it imports from Russia’s Gazprom in US dollars and will seek exchange rate neutrality in case payments are sought in any other currency such as Euro, two sources said. GAIL has a deal to receive 2.5 million tonnes of liquefied natural gas (LNG) annually on a delivered basis from Russia’s Gazprom. This translates into 3 to 4 cargoes or ship loads of super-cooled natural gas every month.

“The contract with Gazprom provides for making payments in US dollars,” a source with direct knowledge of the matter said. “Payments become due 5-7 days after the delivery of the LNG cargo. The last payment was made on March 23, which was in US dollars.”

An LNG shipload was received on March 25 and its payment will be due in early April. There is no indication that the payment for this cargo will be in a currency other than US dollar, sources said.

“So far, the US dollar payment continues without any problem,” another source said. “Gazprom has so far not communicated anything to GAIL about change in payment mode.”

Sources said the last payment was settled through State Bank of India (SBI) – the bank that has been used to pay for imports from Gazprom since the start of supplies in June 2018.

GAIL, they said, has so far not received any written communication from Gazprom for change in the currency for settling the payments.

“In case the reports of Gazprom wanting to switch payment to Euro come true, it needs to be examined how the change in currency mentioned in the signed contract can be done,” one of them said. “In case such a request comes, GAIL will seek exchange rate neutrality in switching the payment to Euro from US dollar. Those details will have to be worked out.”

Gazprom reportedly is looking to wean away from the US currency after the Russian invasion of Ukraine. The US and European nations have imposed sanctions on Russia for the military action but have so far excluded energy trade from the sanctions. Russian banks continue to be on the main financial messaging SWIFT system, enabling payments for commodities bought or sold.

“As long as SWIFT is available to settle payments, there should be no problem of paying for the LNG imports, be it in US dollars or Euros,” a source said. “The only concern that GAIL could have is the exchange rate. Currently it is favourable to make payments in Euros but if it changes with rupee strengthening against US dollar, then GAIL would want to be protected.”

GAIL had in January 2018 taken advantage of Russian energy giant’s inability to deliver LNG from the previously agreed Schtokman project in the Barents Sea, to renegotiate price agreed in 2012. The price indexation was changed from the Japan Customs-cleared Crude to Brent, and the oil-linked slope of the contract formula lowered, and therefore the final price.

This it got because it did not insist on Gazprom delivering the promised 2.5 million tonnes a year of LNG from the first year. The supplies were ramped up with full volumes coming from the fourth year. The contract period was extended by three years to accommodate the supplies not taken in initial years as well as get an additional 2 million tonnes over-and-above the 50 million tonnes it had agreed to take in 2012 over the 20 year contract period.

GAIL had signed the original deal on August 29, 2012 with Gazprom Marketing and Trading Singapore Pte Ltd (GMTS), Singapore. The supplies in that contract was from Schtokman project. In the renegotiated deal, Gazprom is to supply LNG from Yamal LNG project in the Arctic peninsula.

India, which traditionally has had close ties with Moscow, has refrained from outright condemnation of Russian action but has called for an end to violence in Ukraine. It has not banned Russian oil and gas imports, unlike several Western countries, and on the contrary has snapped up distressed Russian oil at deep discounts.

Its LNG supplies from Gazprom too have continued without any hindrance.