Doubts over Shellآ’s business model for Hazira LNG

Vol 8, PW 21 (26 Jan 05) Midstream & Downstream
     

Shells business model for the upcoming 5m t/y LNG import terminal at Hazira is coming under increasing scrutiny.

Global LNG prices are touching all-time highs and critics argue it cant compete on price with Petronet-LNG. Until now, Shell has indicated that it would aggregate parcels of LNG for Hazira through spot contracts for spare capacity in regional gas liquefaction trains where it has equity.

Observers are sceptical. I doubt if Shell can get any LNG using this model, one overseas gas company tells us.

The global LNG market is tight until 2008. Theres not enough LNG in the market.

And 90% of global LNG is sold through long-term contracts. Adds another source: Shell is a minority stakeholder in all its LNG liquefaction projects.

Even if it finds spare capacity why should its partners sell gas to India cheaper than the current global price of $5-$6 per mmbtu Petronet-LNG - the sole LNG supplier in India is buying LNG from RasGas at the unbeatable price of $2.53 FOB per mmbtu. Shell would be hard-pressed to get a comparable price at todays global rates.

Remember the tough time GAIL had in getting customers to buy Dahej LNG GAIL could only get people to sign contracts by reducing domestic gas supplies to existing gas customers. Of the 10m cm/d regassified LNG produced by Petronet-LNG at Dahej about 8m cm/d is sold in Gujarat and the rest to customers along the HBJ.

The additional 2.5m t/y LNG expected at Dahej (from 1st April) will cover the present (gas) shortfall along the HBJ, we learn. Shell still has no long-term supply contract in place, prompting questions about the price at which it can offer gas to customers.

Shell wont be able to undercut Petronet-LNG on price, we learn. Shell ought to have tied up the supply side when the market was soft.

They have miscalculated and missed the bus.