Shell for short-term gas sale deals from Hazira

Shell India will go in for flexible natural gas supply contracts, including short-term and spot purchases, for its 5-million-tonne liquefied natural gas terminal at Hazira in Gujarat. The company may also opt for shipping gas by third party vessels.

The government guideline on 26 per cent Indian participation in any company being floated for bringing LNG to the country may, therefore, not come in the way of Shell's LNG shipping plans.

The government's policy does not bar importers in buying gas from a supplier that also ships the gas. This arrangement frees the importer from the mandatory Indian participation.

Although the Hazira terminal is scheduled to be commissioned in March, the company has not yet divulged its plans for gas purchases. Speaking to Business Standard, Shell India Chairman Vikram Singh Mehta said his company was not going into any long-term gas agreements but could buy LNG from countries where it had equity gas. These include Australia, Malaysia, Abu Dhabi and Oman.

"We can bring gas on competitive rates if we have the flexibility of source of supply and the way we want to ship," he said, adding that the company would not follow the model of Petronet LNG, which had entered into a 25-year contract with RasGas of Qatar for 7.5 million tonnes of LNG.

Petronet is shipping this gas through an arrangement with a Mitsui-led consortium in which the Shipping Corporation of India has 34 per cent equity.

Oil and gas industry players say gas under long-term agreements is not available since the product's demand is growing in the world, causing global gas prices to rise to $6 per million British thermal units (mbtu).

"It does not make sense to enter into long-term agreements right now for producers since such contracts require sale at a discount to the spot market," said a gas company executive.

Mehta said the company would like to enter into long-term contracts since it meant an assurance of supply. He said consumers in India were also not willing to enter into long-term contracts since the prospects of cheaper domestic gas were bright.

This made it difficult for companies like Shell to tie up long-term natural gas, he added.

The domestic price of natural gas is also an area of concern for Shell which has put in more than Rs 3,000 crore as foreign direct investment in the country. Domestic natural gas is fetching only $4 a mbtu while global prices are over $6, he said.