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Bloomberg: Shell May Double LNG Imports at $600 Million Terminal in India

By Dinakar Sethuraman

Feb. 27 (Bloomberg) — Royal Dutch Shell Plc, the world’s biggest non-state liquefied natural gas producer, may double imports through a $600 million LNG terminal in India this year, after customers agreed to pay international prices for the fuel.

Shell and partner Total SA aim to import about 24 cargoes this year, equivalent to about 56 percent of the terminal’s capacity, Marc den Hartog, director of gas and power at Shell India Ltd., said by phone from New Delhi on Feb. 26.

Indian power producers and manufacturers are turning to imported gas, paying as much as five times more, because declining output from aging fields failed to keep pace with demand growth. The turnaround at Shell’s West Coast terminal underscores increased confidence in India’s gas market.

“There were genuine concerns in 2005 among customers that spot LNG was expensive and that it would set a precedent for other gas prices,” said Hartog, 46. “It took time to convince customers.”

Shell has never operated its 2.5 million metric ton-a-year port and terminal project at Hazira at more than a third of its capacity since opening in April 2005. The terminal, Shell’s first ever LNG import facility, imported three cargoes, or about 175,000 tons, in the first year of operations ending March 2006, Hartog said.

Total SA has a 26 percent stake in the project, according to Total’s Web site. Shell is boosting LNG imports because fertilizer, power and petrochemical plants are switching from more expensive naphtha, an alternative to gas.

Petronet LNG Ltd., India’s first LNG importer, is in talks to lease Shell’s remaining capacity, Petronet Managing Director Prosad Dasgupta said on Feb. 9. Shell doesn’t have an agreement to lease its terminal to Petronet or to any other company, Hartog said yesterday.

Six Cargoes

The Hague-based Shell is importing about six cargoes in the first three months of this year to Hazira from Malaysia, Oman, Algeria and Trinidad, Hartog said. Each cargo of LNG, gas chilled to liquid for transportation by tankers, is typically about 50,000-60,000 tons.

Asian LNG prices have doubled to about $10 a million British thermal units in the past three years after power demand from steelmakers and chemical plants climbed faster than capacity expansions. Rig costs and a lack of labor are likely to support prices over the next two years, Michael Zenker, head of global gas for Cambridge Energy Research Associates, said on Feb. 15.

Petronet, India’s first LNG import terminal, has operated at near-full capacity since starting up in February 2004, because it supplied gas at less than half the price charged by Shell, Dasgupta said. Petronet has a contract to buy 5 million tons a year from Qatar at about $2.55 a million British thermal units, excluding freight and terminal charges.

Main Shareholders

Petronet’s main shareholders — Bharat Petroleum Corp., Oil & Natural Gas Corp., Gail India Ltd. and Indian Oil Corp. — guaranteed to buy all the LNG imported under the 25-year contract from Qatar. The state-run shareholders, who together hold 50 percent of Petronet, resell the LNG to their customers.

Using Shell’s facility, Petronet may import 1.2 million tons of additional LNG to meet demand from India’s biggest gas- fired power plant in Dabhol, Dasgupta said.

The Dabhol plant is currently operating at about 15 percent of its 2,184 megawatts of capacity by burning naphtha. Switching to gas in June will increase generation to about two-thirds of capacity, helping to reduce blackouts in and around Mumbai.

“Running Dabhol on naphtha is painful because it’s expensive,” Hartog said. Naphtha cost twice as much as imported spot LNG last year, he said.

India’s gas-fired power plants face a shortfall of 18 million cubic meters of gas a day, equivalent to about 20 percent of the country’s demand, Power Secretary R.V. Shahi said Oct. 13. The two terminals have capacity to supply a third of India’s gas demand, according to the oil ministry.

Government Ruling

Shell started the Hazira terminal to meet a government ruling that requires foreign companies to invest about $450 million in the nation’s oil industry before gaining access to the country’s retail fuel market. Shell failed to find enough customers to commit to gas purchases and in March 2004 sold Total a stake to recoup part of its investment.

Shell’s retail plan failed because the government won’t lift a cap on fuel prices. The company has limited its retail venture to 21 gas stations, out of a national total of about 30,000 in India, according to the Petroleum Ministry.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume for transportation by ship to destinations not connected by pipeline. On arrival, it’s turned back into gas for distribution to power plants, factories and households.

One British thermal unit is the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit, or the equivalent heat given off by burning one single wooden match used to light a fire.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at [email protected]

Last Updated: February 26, 2007 23:53 EST

 

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