Ahmedabad/New Delhi: Government-owned Gujarat State Petroleum Corp. Ltd will buy liquefied natural gas, or LNG, for a record $20 (Rs840) per million British thermal units, or mBtu—the highest rate quoted by an Indian firm in the spot market—from Shell group unit Hazira LNG Ltd.
“We booked the gas at $20 per mBtu as we need gas. Pricing is a secondary issue,” said GSPC managing director D.J. Pandian. “We are short of gas and our priority is to source gas from wherever we can.”
“The gas would be used for the power and fertilizer sectors, city gas distribution and other industries,” he said. “We are told gas prices would come down but they don’t seem to be moving down.”
High demand: Workers at Shell’s Hazira plant. GSPC has booked LNG from the unit at $20 per mBtu—the highest quoted by an Indian firm in the spot market.?In April, it bought?LNG for $18 per mBtu from?the plant.
The hydrocarbon firm had in April bought LNG for $18 per mBtu from Hazira LNG.
A Shell spokesperson declined to comment, citing proprietary and confidentiality clauses under commercial agreements.
A senior Gujarat energy department official said the price consumers will pay for the LNG will likely be $22-24 per mBtu.
“The future contract is for September at $20 per mBtu delivered at ship. You need to add freight cost, customs duty of 5.25%, value-added tax in case LNG is being used by any industry other than power, re-gasification cost and again, cost of transporting the regasified gas to factories from LNG terminals through a pipeline,” the official said on condition of anonymity. “So in effect, LNG could cost in the range of $22-24 per mBtu.”
The total supply of natural gas in the country now is around 110 million standard cubic metres per day, or mscmd, against a demand of 180 mscmd. The power and fertilizer sectors use 40% and 29%, respectively, of the gas consumed in India.
LNG prices are directly linked to prices of crude oil. The price of crude rose to more than $147.57 a barrel on 11 July and the fuel was trading at around $119 on Wednesday evening at the New York Mercantile Exchange.
Gas supplies through long-term contracts are not available because global demand exceeds supply. Gas producers typically get a better price in spot markets than through long-term contracts.
India imports some 12mscmd of gas bought in the spot markets. This is mainly sourced by Shell India Pvt. Ltd and Petronet LNG Ltd.
The remaining comes from local production and long-term supply contracts with overseas sellers. Given the demand for LNG in the country, both Shell and Petronet are expanding their capacity to 12 mscmd and 32 mscmd, respectively.
Gas-based power projects in the country require around 70 mscmd, of which only half is currently available. Power sector firms such as NTPC Ltd have been unable to tie up even the short-term LNG cargoes due to a sharp rise in its prices, as reported by Mint on 5 January.
“This will increase cost of energy to Indian users and will have an impact on development,” said a senior executive with a private sector power company who did not want to be identified. “Though it is very difficult to predict oil or gas prices, but it appears that prices will remain high, particularly for LNG as demand increases in winters.”
The ministry of petroleum and natural gas estimates the fuel shortage will persist till 2012 as it expects more discoveries by then.
It also expects supplies to ease when Reliance Industries Ltd starts supplying gas from its Krishna Godavari fields off India’s east coast.
“In the short run, the demand for spot LNG may end once Reliance’s gas comes. But in the long-term business model, spot LNG would continue to have demand in India,” said a Mumbai-based analyst at a financial services firm who did not wish to be identified.