Shell hit hardest by ministry plan to "pool" gas prices

Vol 6, PW 17 (23 Oct 02) People & Policy

PRIVATE SECTOR LNG importers are reacting angrily to plans announced last month by oil secretary B.

K Chaturvedi to 'pool' the prices of domestic gas and LNG. Chaturvedi told Indian newspapers he favoured 'pooling' to meet the "huge demand" from the fertiliser sector.

'Pooling', said Chaturvedi, would "not only encourage use of LNG by the fertiliser industry but also make it affordable." Expectedly, private LNG players are shocked! "Pooling is a ruse to perpetuate state control on the domestic gas sector," we are told. "It is designed to hit private players and subsidise the high cost of Petronet-LNG's regassified LNG." Shell believes it is the target of the government move as it will be the first private company to land LNG in India.

Anger is directed at the "sinister move to use the government's monopoly power" to shield Petronet-LNG's promoters ONGC, GAIL, IOC, BPCL from the likely disastrous commercial consequences of a 25-year take-or-pay commitment with RasGas. Shell has no take-or-pay commitment and plans to sell "parcels" of LNG to India tailored to local demand.

"Shell can offer much shorter term, even one year sales contracts to local buyers," reveals a source. "Petronet-LNG can't do this and is taking shelter behind the government." At current oil prices, Petronet-LNG's payment obligation to RasGas is a massive $1bn per annum.

Its Sales Purchase Agreement contains a 'condition precedent' that Petronet-LNG, "shall have made arrangements for financing the regassification facility" by end 2000. By mid-2000 Petronet LNG realised it could not meet this condition and asked IOC and GAIL to send comfort letters to RasGas.

But unless they can win customers, those comfort letters could be the undoing of both IOC and GAIL.