Shell shuts Hazira amidst R-LNG downturn

Vol 13, PW 17 (11 Feb 10) Midstream & Downstream

Cheap D6 gas flooding the market has crippled demand for spot R-LNG in Gujarat and forced oil and gas major Shell to indefinitely suspend operations at its Hazira LNG import and regassification terminal.

PETROWATCH learns Shell shut the 3.67m t/y terminal on January 26, India’s Republic Day, and has given no date for it to reopen. “It may even be in March,â€‌ speculates one industry source.

Publicly, Shell says it is closing the terminal only for “routine annual maintenanceâ€‌ but the real reason is because spot LNG imports are slow, both at Hazira and at Petronet-LNG’s 10m t/y Dahej terminal, located 65-km to the north. “Shell has not brought in any spot cargoes for some time now,â€‌ adds a source.

“At Hazira, it was very dull before and after Christmas - perhaps the leanest ever since the terminal started (in April 2005).â€‌ Look at Torrent Power to understand the attraction of D6 gas over R-LNG.

Torrent pays $6.92/mmbtu at the â€کburner tip’ for 4.5m cm/d D6 gas to its 1147.5-MW power station. But if it were to use spot LNG imported recently from Repsol, it would instead be paying a whopping $9.61/mmbtu! The landfall price of D6 gas at the Kakinada landfall is $4.2/mmbtu but the delivered price varies from state to state, as it must include transmission costs and marketing margins.

Torrent’s D6 price of $6.92/mmbtu includes $0.135 Reliance marketing margin, $0.93 transmission costs, VAT charged at 15% and service tax at 10.3% of the transmission costs. It also includes $0.46/mmbtu that Torrent pays Gujarat Petronet for last mile transmission from Bharuch - where D6 lands after passing through Reliance’s east-west pipeline.

The $9.61/mmbtu price Torrent would have paid for the Repsol spot cargo includes $0.18 marketing margin, $0.61 transmission charge, $1.10 VAT, $0.06 service tax plus $0.046 for last mile connectivity all added to the $7.20/mmbtu ex-terminal CIF price. All in all, it’s not difficult to see why Shell has not announced when it’s re-starting the Hazira terminal.