Indian LNG buyers turn to flexible deals to reduce price risk

Indian liquefied natural gas (LNG) buyers are now seeking more flexible long-term contracts for supply. According to a report by the Economic Times, this shift is primarily driven by the Iran war, which caused significant disruptions to shipments passing through the Strait of Hormuz. This situation led to a near-halt in gas imports from Qatar, increasing concerns among Indian buyers regarding supply security and price risks.

To mitigate these risks, Indian companies are now adopting strategies to diversify supply sources and ensure greater flexibility in contracts. In a significant step in this direction, Gujarat Energy has signed a new 10-year agreement with the Abu Dhabi National Oil Company (ADNOC). Under this contract, Gujarat Energy will receive 4 million tonnes of LNG from ADNOC's international gas portfolio starting from 2028. This deal is part of efforts to strengthen India's energy security and reduce dependence on a single country.

On the other hand, Petronet LNG is also refining its supply strategy. A 20-year contract between Petronet LNG and QatarEnergy is being renewed. According to the Economic Times report, Petronet LNG is currently negotiating to include gas from US sources in this renewal contract. If an agreement is reached, Petronet LNG will have the facility to obtain gas from the US in addition to Qatar, providing a security shield during future geopolitical tensions.

For Indian buyers, the Strait of Hormuz is an extremely sensitive route, as ships from major supplier countries like Qatar use this passage. When this route was jeopardised due to the Iran war, imports from Qatar almost came to a standstill. This incident has warned the Indian energy sector that relying on a single geographical area or a single country can be risky. Consequently, there are now demands to add terms to long-term contracts that can provide protection against market fluctuations and political instability.

Under this innovative approach, companies are now emphasizing contracts that allow for the changing of gas sources or have more flexible pricing mechanisms. The steps taken by Gujarat Energy and Petronet LNG demonstrate that India now wishes to explore various global options for its energy requirements. Specifically, the 10-year contract with ADNOC and the discussions to include American gas in the QatarEnergy contract are both significant from an energy security perspective.

Thus, the crisis created by the Iran war has forced Indian LNG buyers to make drastic changes to their import policies. The focus is now not just on cheap gas, but on a supply that will not be interrupted during any international conflict. In the coming years, India will attempt to meet its energy needs by entering into more flexible agreements with a wider variety of countries to avoid future situations similar to those involving Qatar or the Strait of Hormuz.