Shell, Gujarat Petro teams to discuss LNG deal today

A visiting Shell delegation, led by executive director Linda Cook, is expected to discuss on a long-term (LNG) supply contract with Gujarat State Petroleum Corporation (GSPC) on Wednesday.

GSPC is seeking more than a million tonne (mt) of LNG from Royal Dutch (Shell), while Shell has offered the company half a million tonne of LNG from its Gorgon project in Australia on a long-term contract basis. Balwant Singh, chairman, GSPC, said, "We seek much more than half a million offered by Shell."

Though GSPC is keen to buy LNG from Shell, the latter's pricing is likely to be a contentious issue for both the sides. Shell had offered GSPC LNG at around $9 per mmbtu during their initial rounds of meeting last month vis-a-vis around $4.70 per mmbtu offered by Petronet LNG and a price of around $5 per mmbtu of Panna Mukta Tapti gas offered by the consortium.

"Prevailing high (LNG) prices are a major issue and both sides will have to find out some amicable solution, as our consumers even "" the power companies "" are not prepared to pay high prices for LNG," said Singh. The proposed deal between Shell and GSPC would also change the nature of LNG receiving and regacification terminal of Shell Hazira, established as a merchant terminal in April 2005.

Launched as a merchant terminal implies it has an ability to undertake short-term as well as long-term supply contracts from multiple supply points. If a long-term supply contract with GSPC is signed, it would become a dedicated terminal for supply of LNG to GSPC. The LNG is expected to be shipped in from Gorgon LNG terminal in Australia.

Royal Dutch Shell Plc holds 25 per cent in Australia's Gorgon LNG, as does Exxon Mobil Corp, while operator Chevron Corp owns the remaining 50 per cent.

Shell has an annual share of 2.5 mt of LNG from Gorgon, due to start shipping in 2010, and said last year that it would ship its entire share to a new import terminal to be built in northern Mexico to supply the US West Coast.

Gorgon LNG was to sell its LNG to CNOOC, but the talks did not materialise and finally broke down late last year over pricing of LNG from Gorgon.