Reliance challenges LNG suppliers with cheap gas

Vol 7, PW 6 (04 Jun 03) Midstream & Downstream

RELIANCE CLAIMS it can sell its Krishna Godavari gas at $0.50 lower than any price offered by Petronet-LNG or other competitors.

The RasGas contract is unviable," a top Reliance official tells PETROWATCH. Any country with enough domestic reserves doesn't need to import LNG.

If Petronet-LNG thinks it can offer gas at the cheapest and most affordable price, well undercut it by 50 cents." He adds: Long term LNG contracts are history. How can you lock-in huge investments for 20-25 years Petronet-LNG should rework its contract with RasGas into a two-to-four year agreement.

Asked to react, a senior Petronet-LNG source dismisses Reliances claims outright. There is no point in quoting such a price!" he said.

"Ask Reliance if it can commit to signing a legal document with any potential customer at this rate." More vocal was another industry source. If Reliance is serious, then tell the company that all suppliers are laughing at such a proposition.

Where are they going to sell their gas Maharashtra or Gujarat Technically itmakes sense but the economics is a disaster. He said Reliances pipeline would have to transit at least three states - Andhra Pradesh, Maharashtra and Gujarat.

There are three Chief Ministers waiting to take maximum benefit by seeking allocation of gas in their own states to fire their industries. He said the gas business runs on very thin margins.

Selling 50 cents cheaper will hurt Reliances balance sheet, unless it writes-off an entire investment." Yet, the Reliance official is confident. A foreign major once told us that deepwater drilling is very expensive and we wont be able to afford it," he said.

"We proved the multinational wrong and negotiated each and every contract down. Reliance reminds us that it also built a 27m t/y refinery when all around said it couldn't.