Shell to take on Petronet with LNG flexible spot pricing model

New Delhi, April 20 | Updated: Apr 21 2005, 06:02am hrs
Mulinational energy major Royal Dutch/Shell will adopt a flexible spot pricing model for LNG consumers to combat rival Petronet LNGs comparatively lower prices. LNG contracts are usually for long terms of 20-25 years, with take-or-pay obligations. Shell, whose first LNG ship carrying 130,000 cubic metres of the fuel is berthed at Hazira jetty right now, is all set to try a unique model that allows the consumer to terminate contracts more freely.

The MNCs arm Hazira LNG Ltd has already entered into a purchase agreement with Gujarat State Prtroluem Corporation (GSPC). It is currently in talks with many more power and fertilier companies along the Gujarat coast line.

Inclusive the sales tax (12%), Shells LNG will cost $4-4.5 per million btu to the consumer. This, of course, is higher than the price at which Petronet sells LNG from its Dahej facilities under long term cotracts.

Flexibility in contracts is going to be our advantage, Marc den Hartog, director, Shell Gas & Power told FE. Under the contracts we will now enter into, price will be determined by other contractual terms, he said.

Shell has already connected its LNG terminal to GSPCs pipeline network at Mora, 20 km off Hazira. It expects GSPC to be a wholesaler to many other consumer units in the region.

Mr Hartog said the multinational would commence negotiations with Gail India Ltd for connectivity to the PSUs HBJ pipeline network to take the gas to industrial consumers in National Capital Region. It is pointed out that Shells LNG prices are lower than global spot prices that rule in the region of 6-8 mmbtu. The MNC will commission the Hazira LNG facility, which has initial throughput capacity of 2.5 mtpa, on April 21. Shell holds 74% equity in Hazira LNG, while Total holds 26%.

We wish to augment the LNG capacity at hazira to 10 mtpa, said Mr Hartog. Meanwhile, Shell is planning to set up bulk cargo handling and container jetty facilities, adjacent to its Hazira port, most likely by teaming up with Essar Group and an overseas partner with expertise in port designing. As per initial estimate, the project will cost over Rs 3,000 crore.