Shell last year had announced plans to build a floating LNG of up to 5 million tonnes per annum capacity off Kakinada coast in a JV with Anil Ambani Group firm Reliance Power.
But Reliance Power earlier this year exited the project and now Shell has decided to join the GAIL-led project which was announced in 2011.
Sources privy to talks said Shell, GAIL and the AP government are talking about the possible equity structure. Shell, they said, may take 30% stake. Europe's largest LNG importer GDF Suex UK with whom GAIL originally planned the Kakinada terminal will take 26 %.
The remaining 44% will be held by Andhra Pradesh Gas Distribution Corp, a company jointly promoted by GAIL Gas and Andhra Pradesh Gas Infrastructure Corp. GAIL Gas is wholly-owned subsidiary of GAIL India.
When contacted, a Shell India spokesperson said: "Shell can confirm that the company is in exploratory discussions with GAIL and other potential partners on the Kakinada LNG project.
As the discussions are still preliminary, we cannot comment on any specifics at the moment."
Sources said the floating storage and regasification unit in offshore Andhra Pradesh will be commissioned by 2015.
The import terminal would have a 3.5-5 million tonnes per annum capacity and will be used to cater to gas demand in Andhra Pradesh and neighbouring states.
While Shell already operates a 5 million tonne LNG import facility at Hazira in Gujarat, GDF Suez is present in India in the natural gas business since 1997, with a 10%stake in Petronet, the owner of LNG import terminals in Dahej and Kochi.
FSRU is a faster and low-cost solution for LNG importation.
This is the first of its kind in India. Kakinada is also the landfall point of billionaire Mukesh Ambani-led Reliance Industries' flagging KG-D6 gas fields in the Bay of Bengal, and a near 1,400-km line carries the fuel from to consumption centres in the west.
The continuing fall in KG-D6 output has triggered a rush for setting up of LNG import facilities to meet the growing energy demands.
Petronet LNG, the nations largest importer of gas in its liquid form in ships too, is building a 5 million tonne facility at Gangavaram in Andhra Pradesh by 2016.