Shell no longer interested in Dahej to Uran pipeline

Vol 8, PW 13 (22 Sep 04) People & Policy

Shell is no longer interested in selling regassified LNG to Maharashtra and will concentrate on a market closer to home: Gujarat.

This report learns that in August Shell held a series of meetings with customers in Maharashtra, among them Tata Power, Grasim Industries, and Rashtriya Chemicals and Fertilisers, to tell them of its change in strategy. Shell told all of its customers in Maharashtra that it wont be offering them regassified LNG, reveals a source.

They were told that Shell cant sell LNG at a competitive price in Maharashtra and that it will focus on Gujarat. Shells change of strategy has also been communicated to GAIL.

On 27th August, Shells India chief Vikram Singh Mehta told a GAIL director that the company was forced to change its strategy following Reliances deepwater gas discovery in the Krishna Godavari and the possibility that KG gas will find its way to Uran in Maharashtra. Shell has no plans to enter the Uran market for the present, writes the director in a confidential note prepared for GAILs board.

The change in Shell strategy is due to the possibility of KG basin gas reaching Uran and consumers unwilling to sign medium or long-term contracts for regassified LNG. A source confirms that LNG sold by Shell in Gujarat would be $0.35c cheaper than the same gas sold in Maharashtra.

Even GAIL admits the logic behind Shells decision. The delivered price of Reliance gas in the Uran market will be about $3.15 per mmbtu, reveals the GAIL director.

As against the delivered price of R-LNG by GAIL at more than $5.15 per mmbtu. Rather than fight Reliance on price, Shell prefers to surrender.

Shell does not want to get into a price war, adds a source. Shell does not like price wars.

If it can sell gas cheaper elsewhere, thats where it will go.