Shell may double imports via $600m India terminal

Royal Dutch Shell Plc, the world's biggest non-state liquefied natural gas producer, may double imports through a $600 million LNG terminal in India this year, after customers agreed to pay international prices for the fuel.

Shell and partner Total SA aim to import about 24 cargoes this year, equivalent to about 56 per cent of the terminal's capacity, Marc den Hartog, director of gas and power at Shell India, said by phone from New Delhi yesterday.

Indian power producers and manufacturers are turning to imported gas, paying as much as five times higher, because declining output from ageing fields failed to keep pace with demand growth. The turnaround at Shell's West Coast terminal underscores increased confidence in the country's gas market.

"There were genuine concerns in 2005 among customers that spot LNG was expensive and that it would set a precedent for other gas prices,'' said Hartog. "It took time to convince customers.''

Shell has never operated its 2.5 million tonne-a-year port and terminal project at Hazira at more than a third of its capacity since opening in April 2005. The terminal, Shell's first-ever LNG import facility, imported three cargoes, or about 1,75,000 tonne, in the first year of operations ending March 2006, Hartog said.

Total SA has a 26 per cent stake in the project, according to Total's website. Shell is boosting LNG imports because fertiliser, power and petrochemical plants are switching from more expensive naphtha, an alternative to gas.

Petronet LNG, India's first LNG importer, is in talks to lease Shell's remaining capacity, Petronet Managing Director Prosad Dasgupta said on February 9. Shell does not have an agreement to lease its terminal to Petronet or to any other company, Hartog said yesterday.

The Hague-based Shell is importing about six cargoes in the first three months of this year to Hazira from Malaysia, Oman, Algeria and Trinidad, Hartog said. Each cargo of LNG, gas chilled to liquid for transportation by tankers, is typically about 50,000-60,000 tonne.

Asian LNG prices have doubled to about $10 a million British thermal units (Btu) in the past three years after power demand from steelmakers and chemical plants climbed faster than capacity expansions. Rig costs and a lack of labour are likely to support prices over the next two years, Michael Zenker, head of global gas for Cambridge Energy Research Associates, said on February 15.

Petronet had operated at near-full capacity since starting up in February 2004, because it supplied gas at less than half the price charged by Shell, Dasgupta said. Petronet has a contract to buy 5 million tonne a year from Qatar at about $2.55 a million Btu, excluding freight and terminal charges.

Petronet's main shareholders "� Bharat Petroleum Corp, Oil & Natural Gas Corp, GAIL India and Indian Oil Corp "� guaranteed to buy all the LNG imported under the 25-year contract from Qatar. The state-run shareholders, who together hold 50 per cent of Petronet, resell the LNG to their customers.

Using Shell's facility, Petronet may import 1.2 million tonne of additional LNG to meet demand from India's largest gas-fired power plant in Dabhol, Dasgupta said.

The Dabhol plant is currently operating at about 15 per cent of its 2,184 megawatts of capacity by burning naphtha.

Switching to gas in June will increase generation to about two-thirds of capacity, helping to reduce blackouts in and around Mumbai.

"Running Dabhol on naphtha is painful because it is expensive,'' Hartog said. Naphtha cost twice as much as imported spot LNG last year, he said.

India's gas-fired power plants face a shortfall of 18 million cubic metres of gas a day, equivalent to about 20 per cent of the country's demand, Power Secretary R V Shahi said October 13. The two terminals have capacity to supply a third of India's gas demand, according to the oil ministry.

Shell started the Hazira terminal to meet a government ruling that requires foreign companies to invest about $450 million in the nation's oil industry before gaining access to the country's retail fuel market.