Shell and GSPC disagree on terms for Hazira R-LNG

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

Gujarat State Petroleum is in talks with Shell to purchase R-LNG from Hazira but a wide gap persists between both over the terms any likely contract.

It is incorrect to say customers want only long-term contracts while Shell is now offering short-term contracts, says a source. We know GSPC has been asking Shell for a master SPA incorporating short, medium and long-term contracts whereas Shell now wants to offer only short-term contracts.

We are told, GSPC has been seeking this arrangement with Shell for about two years, but Shell did not respond. With such an arrangement, we hear, GSPC will be able to offer customers a basket of terms which will also average the price to make it more affordable.

For short-term contracts, GSPC is looking at spot cargoes; medium-term contracts could run from 2006 to 2008 and long-term for about 20 years from 2008. Even when the previous contract was signed with Shell, says our Gujarat source, GSPC was keen to have a long-term contract.

Another issue in dispute with Shell is price. Shell is offering spot cargoes to GSPC at about $10 per mmbtu.

GSPC is unwilling, but says customers are keen for long-term contracts at a delivered R-LNG price of about $6 per mmbtu. Gujarat sources believe Shell can commit long-term cargoes at this price.

Says another Gujarat source: Two years ago GSPC was finding it difficult to sign R-LNG customers. Now customers are willing to pay nearly double.

We hope Shell is aware of this change. Also, they (GSPC) have said they want to be Shells anchor customer for Hazira.

Adds a gas sector source: GSPC is believed to have told Shell that as and when new liquefaction trains are put up theyd like to buy at least 2.5m t/y (Haziras present capacity) over the long term. Industry sources say GSPC is on strong ground.

Unlike Shell, it has connectivity through its pipeline grid with the final customer. With plans to expand this network, its position will be even stronger.