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Multiyear LPG contracts for India terminal: Shell

Multiyear LPG contracts for India terminal: Shell
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First Published: Fri, May 04 2007. 12 39 PM IST
By Dinakar Sethuraman/ Bloomberg
Singapore: Royal Dutch Shell Plc, Europe’s largest oil company, said it may sign multiyear contracts for liquefied natural gas shipments to India because increased demand has revived confidence in the market.
Shell aims to secure long-term supplies for its $600 million (Rs2,455 crore) terminal in western India in the next 12 months, said Peter de Wit, executive vice president for global businesses at Shell Gas and Power International. The terminal would switch partially from spot cargoes that kept the plant operating at no more than one-third of capacity in two years since starting.
Indian gas consumers are turning to imported gas, paying as much as five times more than subsidized domestic supply, because declining output from aging fields failed to keep pace with demand. The turnaround at the terminal operated by Shell, the world’s biggest non-state LNG producer, reflects soaring demand for gas from power plants and factories.
“Customers in India are willing to pay for gas,” de Wit said on 27 April in an interview at LNG 15, an industry event in Barcelona. “We are now in talks with suppliers and users for term contracts.”
Shell started the Hazira terminal to meet a government ruling that requires foreign companies to invest about $450 million in the nation’s oil industry before gaining access to the country’s retail fuel market. Shell failed to find enough customers to commit to gas purchases on a term basis and in March 2004 sold a total of 26% stake to recoup part of its investment.
Chilled Liquid
LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit), for transportation by ship to destinations not connected by pipeline. On arrival, it’s turned back into gas for distribution to power plants, factories and households.
The Hague-based Shell started operating its 2.5 million metric tonne-a-year port and terminal project in Hazira in April 2005.
The terminal, Shell’s first-ever LNG import facility, imported three cargoes, or about 175,000 tonne, in the first year of operations ending March 2006.
Shell is boosting LNG imports because fertilizer, power and petrochemical plants in India are switching from more expensive naphtha, an alternative to gas.
2007 Cargoes
Shell has imported two cargoes every month this calendar year from countries including Malaysia, Oman, Algeria and Trinidad, said a Shell official, who declined to be identified. Each cargo of LNG is typically about 50,000-60,000 tonne.
The company typically imports two-thirds of its spot supplies from LNG projects in which it holds equity, de Wit said. The company may give preference to term supplies from such projects, he said. Shell has stakes in LNG ventures in Nigeria, Oman, Qatar, Malaysia, Brunei, Australia and Russia.
Asian LNG prices have doubled to about $10 a million British thermal units in the past three years after power demand from steelmakers and chemical plants climbed faster than capacity expansions.
One British thermal unit is the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit. That’s about the same amount of heat from burning one match stick.
Plans by Shell to boost shipments through its facility may discourage rival Petronet LNG Ltd from leasing capacity at Hazira for additional imports of the clean fuel.
Spot Market
Petronet, India’s biggest liquefied natural gas importer, said it may buy as many as 54 cargoes of LNG in the spot market in the next two years from suppliers in Middle East and Africa, among others, the company’s Managing Director Prosad Dasgupta said last week in an interview at LNG15. The imports are targeted to supply a state-owned gas-fired power plant in Dabhol.
The state company’s preoccupation with supplying the west coast power plant and lack of additional capacity may turn some customers in western and northern India to buy LNG from Shell, Dasgupta said.
Petronet has a 25-year contract to buy 5 million tonne a year from Qatar at about $2.55 a million British thermal units, excluding freight and terminal charges.
Petronet’s main shareholders -- Bharat Petroleum Corp., Oil & Natural Gas Corp., Gail India Ltd and Indian Oil Corp. -- guaranteed to buy all the LNG imported under the 25-year contract from Qatar. The state-run shareholders, who together hold 50% of Petronet, resell the LNG to their customers.
India’s gas-fired power plants face a shortfall of 18 million cubic meters of gas a day, equivalent to about 20% of the country’s demand, forcing producers to pay more for natural gas. Naphtha cost twice as much as imported spot LNG last year.
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First Published: Fri, May 04 2007. 12 39 PM IST
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