Essar in possible 22-cargo LNG deal with Shell

Vol 15, PW 3 (11 Aug 11) Midstream & Downstream

Essar is rumoured to be talking to Shell about signing a 22 cargo short-term LNG import deal.

PETROWATCH learns Essar is expected to sign the deal with Shell sometime this month for 12 ‘firm’ LNG cargoes and 10 ‘optional’ cargoes to be imported at the Hazira LNG terminal in Gujarat. “One cargo a month is expected to land at Hazira for Essar over 22 months beginning this October,” reports an industry source.

Essar, he explains, is being forced to think of using R-LNG to plug the gap resulting from severe restrictions on D6 gas supplies to its Hazira steel mill complex for the past 90 days. Still unclear is how much Essar will pay for the LNG but Shell is expected to source the cargoes from its own gas liquefaction facilities around the world, as well as those of junior partner Total.

When contacted by this report, a Hazira LNG source unsurprisingly denied any such emerging development. “The LNG market is very dull at the moment,” he quipped.

“There's nothing to report. Why don’t you write about the good rainfall in Ahmedabad instead” Yet well-placed industry sources insist a deal between Essar and Shell is imminent.

In April, the oil ministry directed Reliance to curb D6 gas supplies to steel producers like Essar, in light of declining production from the D6 block. In its notice the ministry said steel producers are not among government-designated ‘priority’ sector customers for D6 gas, unlike fertiliser factories or power producers.

Essar has signed contracts with Reliance for up to 3.2m cm/d of D6 gas for its Hazira steel mill complex, but is receiving around 600,000 cm/d. Until last year Essar Steel was buying R-LNG from Shell.

But today, Essar receives R-LNG from GSPC (1.9m cm/d); IndianOil (1.12m cm/d); GAIL (1m cm/d) and BPCL (400,000 cm/d); and 700,000 cm/d domestic subsidised gas from GAIL.