Iran-US/Israel conflict: Indian government's gas supply order bars filing of cases over diverted LNG supplies

The Central government’s Natural Gas (Supply Regulation) Order issued on March 9 under the Essential Commodities Act, 1955 contains a clause barring entities that receive diverted natural gas supplies from filing court cases against the revised supply arrangement..The order allows the government to reallocate natural gas to priority sectors such as households, transport fuel and fertiliser production. Since these diversions may alter supply volumes or pricing under existing gas sale agreements (GSAs), entities receiving diverted gas must formally acknowledge the revised terms and refrain from initiating litigation..It is aimed at preventing contractual disputes that could arise from the government’s decision to divert gas supplies across sectors following disruptions to liquefied natural gas (LNG) shipments through the Strait of Hormuz due to the ongoing conflict in the Middle East.The order contains a clause as per which the receiving entity has to undertake that they will not challenge the revised supply arrangement. It states,"The entities from priority sector to whom the pooled gas is supplied shall give an undertaking that the pooled price is acceptable to them and they shall not make the force majeure mitigation supply subject to any litigation as this may be at variance with their existing contracts.".The Essential Commodities Act was enacted in 1955, during a period when India was facing shortages of food and essential goods. The objective of the law was to prevent hoarding, black marketing and artificial price increases in commodities necessary for everyday life.The Act empowers the government to declare certain goods as “essential commodities” and regulate their production, supply, storage, transport and distribution in the interest of the public..The list of essential commodities has evolved over time but has historically included goods that are critical for daily consumption or economic activity. Petroleum and petroleum products are included in the schedule to the Act, enabling the government to regulate energy supplies when necessary..Interestingly, the order relies on Supreme Court's 22-year-old judgment in Association of Natural Gas & Ors Vs Union of India. In that case, the apex court had held that natural gas and LNG fall within the ambit of “petroleum and petroleum products”. .When the Centre invokes the Essential Commodities Act, it can issue legally binding orders regulating the commodity in question.Under Section 3, the government can:control production and supply of the commodityregulate distribution across sectorsimpose stock limits to prevent hoardingcontrol storage and transportationdirect producers and suppliers to sell to specified sectors.These powers allow the government to temporarily override market-driven allocation and ensure that essential goods are available where they are most needed..To maintain supplies to priority sectors, the government has authorised redistribution of natural gas from lower-priority sectors.Gas supply may be curtailed first from petrochemical facilities, including entities such as ONGC Petro Additions Limited, GAIL’s Pata Petrochemical Complex and other high-pressure industrial gas consumers. Supply to power plants may also be reduced where required..The order also directs oil refining companies to absorb part of the disruption by reducing gas allocation to refineries to around 65 per cent of their average consumption over the past six months, subject to operational feasibility. .To implement diversion of gas supplies, the government has also introduced a gas pooling mechanism..The order further states that the provisions of the order will apply notwithstanding anything inconsistent contained in gas sale agreements or other commercial arrangements, giving the government overriding authority to divert supplies where required. All entities involved in the production, import, marketing, transportation and distribution of natural gas - including producers, LNG terminal operators, pipeline operators and city gas distribution companies - have been directed to immediately comply with the allocation framework and revise supply schedules accordingly. .[Read Order Copy].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.