Looking to Shell as the saviour of the power sector
Its a measure of how desperate the situation has become that the oil ministry is in talks with Shell to see if it can help bridge the widening gap in gas supplies to the power sector.
On 15th July oil and power ministry officials met Shell to explore possibilities of sourcing more gas to the power sector from the Hazira LNG terminal. Information with this report suggests the oil ministry wants to find out if Shell can sell regassified LNG from Hazira to power companies at a maximum $6 per mmbtu, exclusive of customs duties and local taxes.
Vikram Singh Mehta, representing Shell, apparently made no commitment but agreed to revert with the companys response. During the meeting Singh strongly hinted that Shell might not be able to supply regassified LNG at $6 per mmbtu, given the sharp rise in global LNG prices over the past year.
He said Shells supply model for Hazira is based on spot purchases of LNG and long-term contracts and admitted, It has not been possible to arrange supplies at prices acceptable to the Indian market. During the meeting it emerged that Shells landed price of LNG at Hazira is between $5.7 and $6 per mmbtu.
Add regassification and the gas price at the Hazira downstream flange increases to $7 per mmbtu; with customs duty and sales tax the burner tip price of R-LNG ex-Hazira increases to approximately $8 per mmbtu unthinkable for most companies in India. Shell suggested that even if R-LNG could be delivered at $7 per mmbtu the variable cost of power generation would increase to a relatively high Rs2.60 per KwH.
Shell further said it believed global LNG prices would soften only from 2009 onwards when new LNG facilities come on stream.