Lloyds List: Shell seeks exemption on LNG to India: “Royal Dutch/Shell is seeking an exemption to the Indian-flag rule on LNG vessel charters for imports to Indian terminals.” (ShellNews.net) 8 Dec 04

Impasse over gas cargo flag rule, writes Shirish Nadkarni

Dec 08, 2004

Royal Dutch/Shell is seeking an exemption to the Indian-flag rule on LNG vessel charters for imports to Indian terminals.

The energy giant wants to use foreign-flagged vessels for LNG shipments to its 2.5m tonnes per annum receiving and regasification terminal at Hazira, on the Gujarat coast.

Strict guidelines issued by India's Directorate-General of Shipping are very specific on the vessel requirements for chartering LNG tankers into the country.

The guidelines state that a licence will only be granted if the vessels are registered under the Indian flag, and are owned either wholly by an Indian entity or by an LNG carrier owning company in which an Indian partner has not less than 26% equity.

'As far as we are concerned, the policy on LNG is hardly final; it is still being evolved,' said Shell India's chairman Vikram Singh Mehta.

'We are entitled to bring LNG on ships that are not necessarily registered under the Indian flag. We plan to bring the LNG cargo on ships that are either chartered on the high seas or on ships belonging to Shell.'

The group has expressed difficulty in complying with the guidelines issued by the maritime regulator on the grounds that the latter was adopting the wrong LNG model in connection with Shell.

'The Ministries of Shipping and Petroleum are looking at a model wherein surplus LNG cargoes from our joint-venture liquefaction plants across the globe would be redirected to Hazira on spot or short-term basis, rather than a model where we are importing the gas on the traditional long-term basis,' said Mr Mehta.

'Secondly, the guidelines on chartering of LNG vessels were not in place when the Hazira project was approved by the government; and hence it is unfair to impose shipping constraints at this late stage, when our terminal is slated for commissioning shortly.'

To break the impasse, the Shipping Ministry had worked out a compromise formula which involved Shell selling two of its own LNG carriers to a consortium comprising the state-owned Shipping Corporation of India and private sector Great Eastern Shipping and Varun Shipping.

The consortium would convert the ships into Indian-flag carriers and charter them back to Shell for hauling the LNG to Hazira. However, Shell claims it will have none of it.

Shell India's Hazira facility is fast nearing completion, and the company expects to carry out commissioning tests in December and January.

Mr Mehta said that Shell would start importing the gas by the first quarter of 2005; and was looking at sourcing it from Malaysia, Australia, Brunei, Oman or Nigeria.

'We will source the LNG for Hazira from multiple sources,' he said. 'We have equity in LNG projects in all these countries, so our options are pretty open.'