Indian GAIL reluctant to sign agreements with Iran for fear of U.S. sanctions

Business agreement
Source: DollarPhotoClub

State-owned Indian gas company GAIL is reluctant to sign any gas import agreements for fear of being penalised by the U.S. – The Economic Times reported on Monday. Under US sanctions against Tehran, companies doing energy business in with Iran face exclusion from the US financial system.

According to EIA, in India natural gas mainly serves as a substitute for coal for electricity generation and as an alternative for LPG and other petroleum products in the fertilizer and other sectors. The country was self-sufficient in natural gas until 2004, when it began to import liquefied natural gas (LNG) from Qatar. Because it has not been able to create sufficient natural gas infrastructure on a national level or produce adequate domestic natural gas to meet domestic demand, India increasingly relies on imported LNG.

India was the world’s fourth-largest LNG importer in 2013, following Japan, South Korea, and China, and consumed almost 6% of the global market, according to data from IHS Energy. Indian companies hold both long-term supply contracts and more expensive spot LNG contracts.

The Gas Authority of India Ltd.(GAIL), which holds an effective control on natural gas transmission and allocation activities, signed an agreement with National Iranian Gas Export Corporation (NIGEC) in 2005, for import of 7.5 million tons a year of gas in its liquid form (LNG) from Iran. It was also a signatory for receipt of gas via the proposed Iran-Pakistan-India (IPI) gas pipeline.

However, the U.S. imposed sanctions against Iran made Indian companies weary of forging deals with the country for fear of being sanctioned by Washington.

“Since GAIL has substantial business interest in the US, GAIL is unwilling to sign any agreement involving an Iranian entity until a final position emerges with respect to Iran sanctions,” Oil Minister Dharmendra Pradhan said in a written reply to a question in the Lok Sabha.

GAIL’s interests in the U.S. include a 20 per cent stake in the shale gas exploration company Carizzo Oil, as well as import deals for the U.S. LNG.

This cautious attitude of Indian companies might serve a blow to Iran’s trade interests. Only days ago Iran made it public that it is on route to completing world’s largest methanol plant with a view to export the fuel to India, among others.

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