covid-19 impact: Shuttered buyers send force majeure notices to energy companies

New Delhi: Energy companies are flooded with force majeure notices from customers as the lockdown has shuttered factories and commercial establishments, destroying fuel and electricity demand.

From small tile makers in Gujarat to big fertiliser and power producers, refiners, and oil & gas producers have been jolted by the global spread of Covid-19, the measures taken to stem its spread and the economic fallout.

Several small factories that have shut due to the lockdown have mailed force majeure notices to city gas distributors, who have in turn sent similar intimations to gas marketers such as GAIL, IndianOil and GSPC. GAIL, meanwhile, has issued force majeure notices to its domestic and overseas suppliers, including ONGC, Petronet LNG and Russia’s Gazprom.

‘Chain Reaction’

“It’s a chain reaction. If the end consumer loses appetite, the effect will go right up to the producer. This is an extraordinary time, and the problem is so widespread that it’s hard for anybody in the middle to absorb the shock,” said a GAIL executive.

GAIL has also received force majeure notices from several heavyweight customers in the fertiliser, power and refinery sectors. Power plants are facing a 30% drop in consumer demand as industries and offices remain shut. Fertiliser units have slowed due to labour shortage and transport hurdles, which has brought down their gas requirements.

Petronet LNG, India’s biggest gas importer, has declared force majeure with respect to its gas purchase contracts with suppliers in Qatar and Australia, and deferred deliveries.

Demand cut notices from GAIL, GSPC and other smaller buyers have forced 18% gas output cut at ONGC, India’s largest gas producer. “We have selectively shut wells and will be able to reopen them quickly when demand picks up after the lockdown,” ONGC chairman Shashi Shanker said.

With fuel sales evaporating during the lockdown, refiners filled up their storages, cut run rates and then issued force majeure notices to suppliers across the globe. “This is an unprecedented situation. You can’t take more crude than you can process or store. It’s a global pandemic and even suppliers understand the problem,” said an executive at a state oil company.

Most refineries in the country are running at about half their capacity and this might shrink further over the next few days. IndianOil, MRPL and HPCL are among refiners which have already invoked force majeure and deferred most of their April deliveries.

Industrial customers whose functioning has been hampered due to the lockdown have also sent force majeure notices to refiners, citing an inability to take refined products.