Reliance versus Shell for Kawas-Gandhar tender

Vol 7, PW 14 (24 Sep 03) Midstream & Downstream

It will be a bitter fight between Reliance gas from the Krishna Godavari basin and Shell's regassified LNG for NTPC's ongoing 3m t/y tender for Kawas and Gandhar.

Most indications are that Reliance has the edge. Industry sources tell PETROWATCH that Reliance's domestic natural gas will enjoy a "natural price advantage" over LNG from any source, despite Shell's experience of the global LNG market.

Key to this tender is the $3 per mmbtu delivered gas price - inclusive of all taxes - that NTPC wants at its burner tip. Shell is not comfortable with this price.

"Today, nowhere in the world is regassified LNG sold for $3 per mmbtu," reveals a source. "Official comparisons of regassified LNG against coal show that even in the US, given current regulations, the gas price works out to $4.40 per mmbtu.

It could go up to even $4.90 per mmbtu if tougher anti-pollution measures are factored into the coal price." Also, "remember that a coal-fired power station has a much longer gestation period (39 months) than (18 months for) an open cycle gas power station." What then is a realistic price "Difficult to say. It will depend on other terms in the contract and the manner in which Shell aggregates LNG for Hazira." No doubt Shell will make a strong case when it meets NTPC on 29th and 30th September to discuss the deviations submitted on 2nd September.

A word of caution: Shell will have to reckon with Reliance and its well-known intolerance of foreign competition on home turf. "How can a MNC be leader in India in a sector where Reliance is there" asks a source.

"How can Reliance ever allow that Look at the petrochemicals business or telecoms." He adds Reliance has pushed Shell into a tight corner over the gas price for Kawas and Gandhar. "Till a year back Shell saw Petronet-LNG as its only serious competition.

They reckoned that Petronet-LNG, with its multiple promoters and partners and margins for each of them would never be able to match the price that a single-promoter company like Shell could offer." Everything was going Shell's way till last October when Reliance announced its 14 tcf gas discovery. "None of the LNG suppliers had factored in the Reliance gas find."