India LNG Fleet Limps Back Through Hormuz

India's seaborne LNG supply chain is creeping back into the Strait of Hormuz but remains a long way from normal. Two India-bound LPG tankers transited the strait on May 14, and on May 20 a separate group of oil tankers carrying an estimated six million barrels of crude exited Hormuz westbound, the first multi-vessel exit since the March escalation. Even so, Petronet LNG's chartered fleet is operating at roughly one-third capacity, with one of three contracted vessels currently functional, and inventories at the Dahej regasification terminal in Gujarat have fallen to a two-to-three day forward cover against a normal operational buffer of seven to ten days.

Petronet declared force majeure under its long-term Sale and Purchase Agreement with QatarEnergy on March 3 after the March 18 strike on the Ras Laffan industrial complex took down an estimated 17 percent of Qatari LNG production capacity, with QatarEnergy's chief executive flagging a three-to-five year repair horizon for the worst-damaged trains. Petronet in turn issued downstream force majeure notices to GAIL (India) Limited, Indian Oil Corporation, and Bharat Petroleum Corporation, and GAIL confirmed in a March 5 stock-exchange filing that allocation under the affected contract had been cut to zero from March 4.

Petronet's owner consortium shares the pain

The force majeure cascade is not a single counterparty event. Petronet LNG is itself a joint venture of four Indian state oil and gas firms, with GAIL, Indian Oil Corporation, Bharat Petroleum Corporation, and ONGC each holding a 12.5 percent equity stake, and the remaining 50 percent floated to public and institutional investors. That means the four government-owned promoters are absorbing the lost LNG twice, once through Petronet's bottom line and again through their own downstream gas-marketing books. Petronet's Dahej facility is the country's largest LNG import gateway with 17.5 million tonnes per annum of nominal regasification capacity, and Qatari volumes have historically supplied roughly 11.2 million tonnes of India's 27 million tonne annual LNG portfolio, or 41 percent of national imports by volume.

Industrial customer cuts deepen

With contractual Qatar volumes at zero, GAIL has rationed remaining supply through a Tier 2 priority framework that caps non-essential industrial customers at 70 percent of their normal off-take. Fertilizer plants have received priority allocations to protect domestic urea production, while city-gas distribution networks are being held flat to defend household and CNG supply. The Morbi ceramics cluster in Gujarat, which depends on natural-gas-fired kilns, has reported close to one hundred unit shutdowns, with industry representatives warning that a further four hundred units would be forced offline if Tier 2 cuts deepen further. GAIL's most recent disclosure said the financial and operational impact of the force majeure event cannot yet be quantified.

Spot LNG arbitrage is now the swing variable

The bridge supply has been the spot market. Petronet and GAIL have both been buying Atlantic Basin cargoes from US Gulf Coast suppliers and from West African producers, but those volumes are competing for the same cargoes that European utilities want for summer storage refill, and the same cargoes Asian buyers are pulling on the back of the Japan Korea Marker premium documented in our coverage of the JKM-to-TTF arbitrage reversal. Wood Mackenzie's most recent press release on the topic flagged closure of Hormuz as the single largest South Asia LNG supply risk, citing India and Bangladesh as the most exposed importers. The picture is further complicated by simultaneous US-side maintenance that has cut US LNG feedgas to 16.9 Bcf per day, narrowing the pool of spot cargoes available for Asian-Pacific delivery.

How the May 20 tanker exit changes the math

The May 20 outflow of crude through Hormuz is partial good news. It signals that vessel operators are again willing to underwrite Hormuz transit risk for high-value energy cargoes, and that war-risk insurance premiums, while still elevated, are no longer prohibitive on a per-voyage basis. As of early May, roughly 13 Indian-flagged vessels remained stranded west of the strait, down from approximately 17 in early April. Each stranded LPG tanker holds between 35,000 and 46,000 metric tonnes of cargo, putting total withheld LPG volume between 455,000 and 600,000 tonnes, equivalent to roughly one to one-and-a-half weeks of Indian LPG import demand. Until Petronet's two non-operational LNG carriers also clear the strait, the Dahej terminal will keep dipping into its remaining inventory cover.