The Hindu Business Line : High prices hit Shell Hazira plans to sign new customers

SIX months after it became operational, the liquefied natural gas (LNG) terminal of Shell at Hazira is yet to sign on new customers and has received only two consignments of gas.

Shell has been selling limited quantities of gas to Gujarat State Petroleum Corporation (GSPC) ever since the terminal was inaugurated on April 21. But high prices have prevented it from cutting ice with any new customers.

Mr Nitin Shukla, Group CEO, Hazira LNG and Ports, confirmed that the terminal has handled only two vessels till now, and is expecting its third consignment soon. That represents a miniscule part of the current installed capacity of 2.5 million tonnes per annum (mtpa).

"It is not a mere wait-and-watch situation for us. We are actively negotiating with prospective clients. With rising demand and completion of the gas grid in Gujarat, we feel that customers who are using liquid fuels will see the merit in shifting to gas. We believe that the market will soon realise that our prices are competitive," Mr Shukla said.

Shell believes that its rates are competitive compared to liquid fuels because even at $7 per mmbtu (million British thermal units), it is cheaper than liquid fuels that range between $10 and $14 per mmbtu. Shell has invested Rs 3,000 crore in the first phase of the project, and plans to raise capacity to 10 mtpa as demand rises. But, as of now, it is finding it difficult to convince customers to cough up nearly $7 per mmbtu, when GAIL (India) Ltd has been selling gas at a little more than half that price.

GAIL has a 25-year contract with Qatar in which price is frozen for five years. Shell, on the other hand, believes in the concept of short-term price contracts and claims that is the way the international market works. Asked if the growing capacities of its rival Petronet LNG Ltd and LNG imports from Iran would hurt Shell Hazira's growth plans, Mr Shukla said that the market was large enough for all the players to thrive.

"We are involved in a liquefaction terminal project in Iran. Similarly, our partner Total is also part of a consortium that is setting up a terminal there. We will be there as much as anybody else, so the pricing would be the same for all of us," he said.

Meanwhile, Shell is also in talks with companies for picking up an equity stake in Hazira LNG and Ports. Total Gaz Electricite Holdings of France holds 26 per cent equity in the company and Royal Dutch Shell the balance. Hindustan Petroleum Corporation Ltd (HPCL) is keen to pick up nearly 26 per cent equity along with marketing rights and has already completed due diligence for the proposed investment. Mr Shukla, however, refused to comment on the HPCL proposal.

"We have always welcomed partners who would add value to the project. But, as of now, there is nothing new to report," he added.

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