The Hindu Business Line : Ministry sets terms for Shell to ship LNG for Hazira

THE Shipping Ministry on Wednesday said that it was willing to be "flexible" in allowing Shell India, a subsidiary of the Royal Dutch Shell Group, to ship LNG to its 2.5 million tonnes per annum re-gasification terminal at Hazira in Gujarat, which is slated to become operational by January/February 2005.

During a meeting with officials from Shell and three Indian ship owners namely Shipping Corporation of India (SCI), Great Eastern Shipping Company Ltd and Varun Shipping Company Ltd here on Wednesday, the Ministry has asked Shell to give its response to a `compromise formula' within the framework of the guidelines on chartering of LNG ships issued by the Director General of Shipping.

"We are not blocking the implementation of the Hazira project. We are willing to be flexible. But, Indian owners should have a role somehow in transporting LNG to Hazira," the Shipping Secretary, Mr D.T. Joseph told Business Line.

As per the `compromise formula', Shell will have to sell two if its LNG tankers to the Indian consortium of SCI, GE Shipping and Varun, which will be converted into Indian flag carriers and chartered out to Shell for bringing gas to Hazira.

Shell will have the option to hold a stake in the shipping consortium. "The consortium can go in for 100 per cent purchase of the LNG tankers and charter it to Shell," Mr Joseph said.

With Shell following an LNG model, which is different from the normal long-term deals, the two Indian-flag LNG carriers could be deployed to bring gas to Hazira according to availability of gas from any of the LNG liquification plants involving Shell across the globe.

Alternatively, Shell could use the two Indian flag LNG ships for long-term deals of 10-15 years for any other contracts involving the Group. In such an event, the LNG cargo for Hazira would be shipped on foreign flag carriers under the `principle of equivalence'.

The `compromise formula' necessitates Shell identifying two LNG ships from within its fleet to be sold to the Indian consortium and the pricing of the two tankers on the basis of a certain charter rates that is mutually acceptable to both parties.

On its part, the shipping consortium will have to arrange funds to buy the tankers for which SCI being a public sector undertaking will have to seek approvals from the Public Investment Board (PIB) and the Cabinet.

Shell has repeatedly told the Ministry that it would be difficult to comply with the norms issued by the DG Shipping which makes it mandatory to bring the LNG on Indian-flag tankers assuming that the cargo is purchased on free-on-board (f.o.b) basis under a long-term agreement wherein the origin-destination points are clearly known.

It has sought the Ministry's permission to haul the gas on spot or short-term basis to Hazira on any one of its foreign flag tankers in a scenario where the origination point of gas is not pre-determined, making long-term shipping plans difficult.

Shell will re-direct to Hazira the surplus LNG from liquification projects run by the Group along with its partner Total of France in West Asia and South-East Asia including Oman, Qatar, Abu Dhabi, Indonesia, Malaysia and Australia.

"In such a situation, imposing any sort of constraints on shipping would adversely affect the viability of the project as well as the end use price of gas," a Shell official said.

However, the Ministry has made it clear that facilitating Indian owners to enter the LNG shipping sector will not be at the expense of the Indian consumers.