MUMBAI (Reuters) - Shell will ink an initial deal on Wednesday with India's Gujarat State Petroleum Corp. to supply 14 million tonnes of LNG from a Chevron-run project in Australia in which Shell has a stake, a source close to the deal said on Monday.
``Shell will supply 700,000 tonnes (a year) of LNG for 20 years to Gujarat State Petroleum from its merchant terminal in Hazira,'' the source, who did not wish to be identified, told Reuters.
Royal Dutch Shell Plc (RDSa.L) holds 25 percent of Australia's Gorgon LNG, as does Exxon Mobil Corp. (XOM.N), while operator Chevron Corp. (CVX.N) owns the remaining 50 percent.
The deal with Gujarat State Petroleum, Shell's sole Indian customer for liquefied natural gas (LNG) so far, follows the breakdown in talks between China's CNOOC and Chevron late last year over pricing of LNG from Gorgon.
Gujarat State Petroleum declined to comment. Shell officials in India could not be reached for comment.
The source said Gujarat State Petroleum had negotiated the LNG contract with Shell's Indian unit at about $4.50 per million British thermal units, for supply from 2010 onwards.
Shell has an annual share of 2.5 million tonnes of LNG from Gorgon, due to start shipping in 2010, and said last year that it would ship its entire share to a new import terminal to be built in northern Mexico to supply the U.S. West Coast.
Chevron has committed most of its share of LNG supplies to Japanese firms, signing sales deals with Chubu Electric Power Co. (9502.T) for 1.5 million tonnes a year, Japan's Osaka Gas Co. for 1.5 million tonnes and Tokyo Gas Co. (9531.T) for 1.2 million. That leaves it 800,000 tonnes of annual supply to market.
YEMEN, MALAYSIA SUPPLY
The source said Linda Cook, Shell's executive director (gas and power), would sign the preliminary deal on Wednesday with Narendra Modi, chief minister of the western Indian state of Gujarat, in its capital, Gandhinagar.
He said Shell would also soon sign contracts with Malaysia's Petronas and Total SA's (TOTF.PA) Yemen LNG Company for supply of LNG to its 2.5-million-tonne LNG terminal in Hazira in Gujarat.
Shell is negotiating a 15-year contract with Petronas for 10.5 million tonnes of the super-cooled and compressed gas beginning 2007/08, the source added. Shell is looking at a short-term contract with Yemen LNG for 700,000 tonnes annually, also from 2007/08.
Industry sources say that after the expiry of its first contract with Gujarat State Petroleum last month, Shell's Hazira terminal has been operating significantly below capacity because Indian gas price controls made it hard for it to find buyers of gas at international market rates.
Early this month, Shell admitted it had been approached by several parties interested in taking a stake in the terminal.
While Total already owns a 26 percent strategic interest in the terminal, India's state-run Hindustan Petroleum Corp. Ltd. (HPCL.BO) and Oil and Natural Gas Corp. Ltd. (ONGC.BO) have expressed interest in picking up equity in the project.
India is promoting LNG imports and is also in talks to build pipelines to bring natural gas from Iran, Turkmenistan and Myanmar as gas usage increases in the energy-hungry economy.
India plans to import 7.5 million tonnes of LNG a year from Iran, starting in 2009 and running for 25 years.