The Hindu Business Line : Shell, GSPC sign long-term LNG deal

ROYAL Dutch Shell and Gujarat State Petroleum Corporation Ltd (GSPC) have signed a memorandum of understanding under which the latter will buy two million tonnes of Liquefied Natural Gas (LNG) per annum, starting 2010.

"We have signed a long-term agreement to buy two million tonnes of LNG. The gas will be used to ensure energy security for the State, as it embarks on its plans for a gas-based economy," the Gujarat Chief Minister, Mr Narendra Modi, told reporters here.

The pricing of the proposed gas off-take has not been specified in the agreement signed on Wednesday and will be decided in the coming months, Mr Modi said.

Shell's Executive Director (Gas and Power), Ms Linda Cook, said that the gas will be supplied on "international prices". She did not elaborate further. Asked about the tenure of the contract, she said, "Long term typically means 15-20 years".

Meanwhile, the two companies failed to arrive at an agreement for short-term supplies of gas through the Hazira LNG terminal, that stopped supplying gas to GSPC, its only customer, on December 8, 2005. GSPC sources said that the two sides were negotiating for about 0.5 million tonnes per annum of gas to keep the terminal running, but could not arrive at a common ground.

In addition to the pricing of the gas, GSPC wanted an assured supply of gas from Shell. While Shell is not in a position to give gas at a discount to international prices that have been ruling around $12 per Million Metric British Thermal Units (MMBTU), Indian consumers are not willing to pay prices higher than about $3.7 per MMBTU that they are paying as of now.

That, in effect, means that the Hazira terminal, in which Total Gaz Electricite Holdings of France has a 26 per cent stake, will continue to be idle in the near term till Shell finds a new customer.

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