Shell offers LNG at $11 per mmbtu to ISPAT

Vol 9, PW 15 (03 Nov 05) Midstream & Downstream

Mumbai-based steel manufacturer ISPAT Industries has begun talks with Shell for LNG supplies from Hazira to its 2.4m t/y Hot Rolled Coil factory.

We hear an ISPAT team visited the Hazira LNG terminal in late October to explore the possibility of buying gas from Shell to supplement dwindling supplies from the Mumbai High to its steel factory at Dolvi in the Raigad region of Maharashtra - 70-km south of Mumbai. Today, ISPAT receives between 750,000 cm/d and 850,000 cm/d at about $4 per mmbtu from Mumbai High through GAIL, even though it has a contract for 1.75m cm/d more than double.

Delhis Gas Linkage Committee has allocated 1.46m cm/d to ISPAT. Actual supplies are clearly far below the contracted quantity or allocation.

ISPAT has to fend for itself, given falling supplies of domestic natural gas. A source tells this report Shell executives took the ISPAT team on a tour of the Hazira terminal and during discussions offered to sell 100,000 cm/d regassified LNG to ISPAT immediately for six months to a year at $11 per mmbtu.

Surprised at the high price, ISPAT did not reject the offer outright, but instead told Shell it would revert after calculating the impact of such a high price on its steel price. ISPAT is looking for short-term supplies from Shell and is also willing to consider a long-term deal of between 10 and 15 years if the price is right.

ISPAT feels Shells price for a years supply is too high - even if it pays a premium for short-term supply. For long-term supplies, ISPAT is comfortable with about $5 per mmbtu.

Before it begins price discussions with Shell, ISPAT needs to answer the crucial question of how to transport gas from Hazira to its factory and is keenly awaiting GAILs long-pending Dahej to Uran pipeline to bring regassified LNG from Gujarat to Maharashtra. A pipeline is ultimately the only solution, we are told.