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NDTV Profit (India): Shell to buy gas under long term contracts

Joydeep Ray
(Mumbai):

The Anglo-Dutch energy giant Shell was one of the first to start investing in gas in India but one of the last to get its business going.

Now it is making a late start, trying to catch up with rivals, Gail and Petronet LNG. The goal is to buy cheap LNG and Shell has finally decided that it is cheaper to buy gas under long term contracts rather than at spot market rates.

“Domestic buyers are refusing to pay the prices Shell is demanding in the range of US $ 8-10. Most of the fertilisers and power companies are not willing to pay more than US $ 4-5 and they are benchmarking it to Petronet LNG Limited, which has a different formula,” said Nagarajan Narasimhan, Head of Research, CRIS INFAC.

Gail was the first Indian company to buy LNG from Algeria’s spot-market and Petronet has a contract with Qatar.

Price war

Now Shell has shipped in over four-lakh cubic metre of LNG in last three months from spot-markets and is now talking to LNG suppliers in Abu Dhabi, Oman, Australia and Indonesia.

The company would also buy LNG under long-term purchase agreements soon. The company target’s,

*To hike capacity of Hazira LNG terminal to 10 MMTPA from existing 2.5 MMTPA

*To look for long-term LNG buyers and in talks with Torrent Power Essar

*To work out a profit-making LNG price for India

Industry sources told NDTV that if Shell cannot bring down its LNG price to $ 5-6 per unit it would have a hard time to grab a share of the rapidly growing LNG market in India.

In the face of the Gail-Petronet price war, Shell is also talking to energy companies, which might pick up stake in its Hazira terminal.

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