Shell withdraws from Kakinada gas project

Ample research had showed lack of adequate demand for liquid gas, says company

European oil and gas company Royal Dutch Shell has decided to discontinue its earlier proposal for a floating liquefied natural gas (LNG) import terminal off the Kakinada coast in Andhra Pradesh.

The company said ample research had showed lack of adequate demand for liquid gas.

“We have put a pause on that project. We worked closely with our partners and engineers and took it to the point where our engineering work was done and we were ready to go. We looked around (but) there was not enough demand. We cannot just spend hundreds of millions and do nothing. So, life moves on,” Nitin Prasad, chairman of Shell in India, told Business Standard. The project also envisaged exploration activity and such projects, he said, involve significant cost. Oil might be found in one place after digging six wells. “Each drilling activity costs hundreds of millions and one has to be very careful when making such decisions.”

The capacity of the proposed terminal, a Floating Storage and Regasification Unit (FSRU), was five million tonnes per annum (mtpa), to be scaled up later by close to 100 per cent. It would have been the first LNG terminal on the east coast.

In September 2015, a pact was signed for the project between Shell, Engie Global LNG, GAIL and Andhra Pradesh Gas Distribution Corporation (APDCL), a joint venture between GAIL (which is owned by the Centre), the central government and the AP state government.

Earlier, Business Standard had reported Shell might own 30 per cent stake in the LNG  project. It was to be operational by March 2018.

An APDCL senior official said what Shell wanted would not be viable for the former. “Shell and Engie Global verbally told us they want to walk out of the project. They wanted a 50 per cent revenue share commitment even before the project. That would not have been a viable proposition,” said the official, who did not want to be named. He said they were now waiting for the Union government’s nod to issue a new tender. 

Prasad of Shell said while the country needed a good contractual framework for more upstream (exploration & production) projects in the oil and gas sector, there should be better ways to resolve issues on investment and demand. “I believe the government is working hard towards that.” 

Shell is, however, open to other projects along the Andhra coast. “We are always looking at projects across the coastline and have taken a look at many different projects. When the time is right, we are open to work with our partners such as GAIL and others. It might not be exactly this one (at Kakinada),” said Prasad.

Shell has a lubricants and petroleum retailing business in India, through 83 service stations. It is present in the downstream business (refining and processing) through an LNG regasification plant at Hazira, Gujarat. The company aims to have 1,500 service stations in a decade.

The Union Government last month announced a new Hydrocarbon Exploration Licensing Policy. In this, it would offer a revenue-share model with private companies, to attract more investment.