Shell awaits customers to restart R-LNG from Hazira

Vol 9, PW 19 (12 Jan 06) Midstream & Downstream

Shell is unlikely to restart production of regassified LNG from its 2.5m t/y Hazira terminal until it finds new customers.

Shell suspended production of R-LNG on 9th December when its contract with sole customer GSPC expired. Shell was not taken aback.

These things happen when you have a model (like at Hazira) with no supply or customer commitment, we are told. No new contract is on the horizon.

Why Shell cant match its price with what customers want to pay, says a source. They say they are still talking to customers.

Market sources tell us customers are unwilling to pay the $12 or $13 per mmbtu that Shell is asking for its spot LNG. Nevertheless, Shell continues discussions with potential customers with a message that it is not the companys intention to make huge profits.

Most resistance is coming from power and fertiliser companies, who make up the bulk of gas customers. Says a source: It is surprising they are willing to buy much costlier ($14 or $15 per mmbtu) naphtha but are unwilling to pay much lower LNG prices.

Smaller customers (like ceramics factories) are willing to pay higher (R-LNG) prices of between $8 and $9 per mmbtu but they do not have pipeline connectivity. Also, theres a mismatch between Shell and potential customers over the tenure of any supply contract.

About a year ago (when the contract with GSPC was signed) customers wanted short-term contracts and Shell was willing to offer long-term contracts, we are told. Now Shell is offering short-term contracts but customers want long-term contracts.

Today, Shell is offering only short-term contracts because LNG prices continue to remain high and because theres a shortage of cargoes till 2009. Everything is booked till then.

Says another source: Shell and Total (its 26% Hazira partner) have global LNG trading arms. They can always divert cargoes bound for the US or Europe if customers in India are willing to pay higher prices.