NTPC reverses opposition to year-long LNG contracts

Vol 10, PW 22 (08 Mar 07) Midstream & Downstream

NTPC - India’s largest power generating company - is at last looking at the possibility of signing one-year contracts to purchase regassified LNG.

Until now NTPC has stubbornly refused to contemplate anything other than short-term contracts of up to 60 days with Shell, GAIL, Indian Oil and Bharat Petroleum to meet the 4m cm/d gas shortfall it faces at its Kawas, Gandhar, Anta, Auraiya, Dadri and Faridabad power stations in northern India. Shell has been telling NTPC for some time that it should sign contracts of up to one year, and now, finally, NTPC is listening.

Shell tells us NTPC has approached it for a model long-term contract. “They (NTPC) said they are thinking about entering into one-year contracts,â€‌ says Shell.

“We told them we agree with them absolutely and that it would be easier (with one-year contracts) to lock-in steady supplies. Prices would also be more attractive than for short-term contracts.

â€‌ Shell has, we understand, “given NTPC the basic parametersâ€‌ of a one-year contract. However, don’t expect any decision soon.

“Things move slowly in NTPC,â€‌ we are told. “They are a bit of a dinosaur.

â€‌ Shell is sensitive to the constraints under which NTPC operates and knows that “changing the existing mindsetâ€‌ will not happen overnight. One-year R-LNG contracts, for example, have take-or-pay clauses.

“NTPC must find out how to manage this with the reality that the state electricity boards they supply do not give them (power) offtake guarantees,â€‌ we hear. “These things will be sorted out in time.

â€‌ NTPC confirms to this report that, “talks are still onâ€‌ for one-year contracts. “Finalisation of these deals take time,â€‌ we hear.

“It depends on the price and other factors. Long-term contracts have their problems also.

Short-term contracts have some advantages because the prices are cargo-based and there is flexibility.â€‌