Sify (India): Shell LNG terminal loses only customer: Wednesday 04 January, 2006

Ahmedabad: Shell's LNG terminal at Hazira has lost its only customer, Gujarat State Petroleum Corporation Ltd (GSPC), but the company says that the facility is still "fully operational."

"Shell has fulfilled the terms of its contract with GSPC and the contract has been completed. We are in discussion with a number of potential customers for short, medium, and long-term supplies of gas," the Shell India Chairman, Vikram Singh Mehta, told Business Line.

Mehta confirmed that the terminal received its last consignment of LNG in October 2005 and that the port's tug boats have been "temporarily redeployed."

GSPC sources said that the company last took gas from Shell Hazira on December 8, 2005.

"Tug boats are required only when a vessel is to be guided into the jetty. It is normal practice to redeploy them elsewhere when they are not required," Mehta said.

The LNG terminal is, however, fully operational and can receive an LNG consignment as and when required, he added.

Asked why Shell was not able to find any customers despite opening the terminal eight months ago, Mehta said it was more to do with the "decision-making process" of Indian consumers.

"We certainly have had difficulty in convincing the Indian customer that our prices are globally competitive. That is unfortunate as LNG is at a discount to liquid fuels that are still being used by certain consumers.

"Our prices are higher than legacy domestic gas prices, but we think it is a temporary phenomenon and Indian consumers will soon be willing to pay international rates."

LNG prices stayed above $12 per mmbtu (million metric British thermal units equivalent) in 2005 while prices of gas in India range between $3.30 and $4.85 per mmbtu.

Reliance and ONGC have already announced prices in the same range for gas from their new finds in Krishna-Godavari basin and Rajasthan that will start flowing in two years.

Temporary phenomenon: Mehta believes that higher international gas prices are a temporary phenomenon.

Referring to lower prices being offered by Indian companies, he said: "We will be able to match those prices at that time, but there is no gas available today and there is a shortage of domestic supply. We are trying to convince our prospective customers that natural gas is not only cheaper than liquid fuels, it is abundant and is environment-friendly."

HPCL due diligence: Meanwhile, HPCL has carried out due diligence for picking up an equity stake in the Shell Hazira venture.

"HPCL has carried out due diligence. We are in talks with several players and we encourage all companies that can bring value to the Hazira venture. But Shell will always be the operator and we have absolutely no intention to sell out the terminal," Mehta said.

Asked what "value" Shell was looking for, Mehta said that in the case of Total Gaz Electricite Holdings of France, which picked up 26 per cent equity in the Hazira asset, the value was in terms of LNG supplies and experience.

For prospective Indian partners, value would come in the form of knowledge of the domestic market and relationships with customers, he said, adding that no decision has been taken yet on the partner.

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