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UpstreamOnline: Gail targets stake in Hazira LNG

By Upstream staff

New Delhi gas major in talks to come onboard import project

New Delhi-based gas major Gail is in advanced talks with Shell to acquire a significant stake in the Anglo-Dutch supermajor’s Hazira liquefied natural gas import and regasification project in western India.

Industry sources in Mumbai claimed that the talks have the full backing of the Indian government, which controls Gail and wants the company to continue to play a flagship role in the nation’s gas distribution business.

Senior Gail officials admitted that the “serious negotiations are on”.

However, they refused to divulge any details or comment officially on the matter.

“There is a tight confidentiality agreement in place with Shell,” said one Gail official.

It is understood that Gail could acquire a controlling stake in the Hazira LNG project.

The company is in the frame to acquire up to a one-quarter interest at an expected cost of $150 million, according to Indian media.

A former director of Gail said: “Expect both Gail and Shell to run the Hazira LNG project, if it is not Gail alone.”

Shell currently has a majority 74% stake in the Hazira project, which is operated on a merchant basis with Total of France holding a 26% equity since March 2004.

Project operator Shell based the Hazira business model on sourcing LNG in the spot market offering LNG at between $4 and $4.5 per million British thermal units, inclusive of Gujarat’s sales tax.

However, less than a year after its spring 2005 start-up, the project was forced to ask potential customers for up to $9 per million Btu a price that they could not afford.

Several months during which operations at the import terminal all but ground to a halt have now passed and this is believed to have prompted Gail to revisit its earlier talks with Shell about coming onboard the project.

As well as securing new customers for its regasified LNG, Shell is also connecting its Hazira facility with Gail’s pipeline network between Dahej and Uran, near Mumbai.

Indian media this week quoted Shell India gas and power director Marc den Hartog as saying that his company is “open for an equity offer which will add value to our LNG venture”.

However, den Hartog added that Shell has “long-term commitments towards the LNG receiving and regasification project and does not intend to desert it by selling off our stake completely”.

An official at the Indian Petroleum&Natural Gas Ministry said Gail would like to have a controlling stake “with or without any Shell presence in the project”.

The Hazira project’s current capacity stands at 2.5 million tonnes per annum of LNG, although the plant and its associated infrastructure has been laid out to handle 5 million tpa and can be quickly and easily expanded.

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