Shell thinks spot LNG is best option in today's market

Vol 10, PW 21 (22 Feb 07) Midstream & Downstream

Shriram is discovering the hard way that GAIL - still dominated by old-world bureaucratic procedure - is not the easiest company to deal with.

For instance GAIL insists Shriram must sign a gas transmission agreement before it installs the metering skid, a critical piece of infrastructure. “GAIL is forcing us to sign a transmission agreement first,â€‌ Shriram tells us.

“They have called for a meeting next week and we will talk about it then. But no date has been fixed.

GAIL works in a very bureaucratic fashion. Only after I sign the transmission agreement can I buy gas.

Only then will it be fed into my plant by a spur line ready at the doorstep.â€‌ On the bright side, a transmission agreement with GAIL will enable Shriram to buy R-LNG from anyone: Bharat Petroleum, Indian Oil, GAIL, or even Shell, who it is talking to now.

Sympathetic, Shell believes the problems faced by its potential new customer Shriram are common among many of the companies it will now be dealing with. “We now have a connection with the HBJ system so many more customers are in reach,â€‌ Shell tells us.

“But the likes of Shriram still need to rely on GAIL to provide some of the necessary infrastructure before they can start receiving gas, like the metering skid. This must be quite frustrating since Shriram has already invested in facilities to allow it to switch its plant from naphtha to gas.

â€‌ What of Shriram’s complaint that Shell won’t offer â€کlong-term’ R-LNG supplies “When customers in India talk about â€کlong term’ they often mean one to three years rather than the 20-25 years customary in the international LNG business,â€‌ adds Shell. “Few LNG suppliers today offer term supplies, and those who do ask high prices.

This is why spot seems to make the most business sense at the moment for customers. Not easy, but when people are faced with a choice between â€کprice’ and â€کterm’ they tend to choose â€کprice’, at least in India.