The Hindu Business Line : Shell Hazira opposed to LNG imports under f.o.b.

SHELL Hazira Gas Pvt Ltd has protested to the Government against the proposed move to make liquefied natural gas (LNG) imports mandatory on free-on-board (f.o.b) basis, as it would make the Rs 3,000-crore LNG-receiving terminal at Hazira unviable.

In a letter to the Director-General Foreign Trade (DGFT), Mr G. K. Pillai, Mr Sanjeev Lowe, Head Strategy, Shell Hazira, has said that "the DGFT may issue a circular limiting LNG imports to an f.o.b basis only, which will make our LNG terminal at Hazira commercially inoperable. The project is on schedule for completion in December 2004, when it is expected to commence natural gas supplies to consumers."

"In line with customer requirement for short-term contracts, LNG supplies have to be premised on c.i.f (cost-insurance-freight) basis. Any directive to restrict LNG imports on f.o.b basis will mean that the project will not be able to supply gas to customers," the Shell official has argued in his letter.

In the c.i.f regime, which reflects the price of product delivery on the Indian shores, the LNG importer can use a foreign carrier to transport LNG, thus giving him greater flexibility in scheduling and pricing his supplies. In the f.o.b regime, which reflects the price at the port of loading of the product onto the ship, an Indian flag carrier must transport the LNG. In other words, the inflexible shipping rules will drive up the LNG price. Even the basic LNG cost would go up, since two-thirds of the LNG supply basket is priced on a c.i.f basis, according to Shell.

Shell's letter followed a request from the Shipping Ministry to the DGFT seeking a ban of LNG deals on a c.i.f basis. The Shipping Ministry argued that c.i.f imports are detrimental to the Indian shipping industry, since suppliers, by and large, prefer to move cargo on foreign carriers. By tying down importers to the f.o.b regime, the Shipping Ministry will have regulatory control over the charter of the vessel to import, hence restricting imports only through Indian vessels.

In the case of c.i.f imports, the Shipping Ministry has no control on the charter of vessels.

Even as the debate is on between protecting and nurturing the domestic LNG shipping industry and letting international market conditions prevail, Shell has argued that the c.i.f import regime is essential to tune its supplies to consumers in the power and fertiliser sector who have expressed their unwillingness to enter into gas purchase contracts for more than three years.