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Shell India’s Gas Users Switching to Cheaper Naphtha From LNG

 Bloomberg 

By Dinakar Sethuraman

Oct. 14 (Bloomberg) — Royal Dutch Shell Plc is selling liquefied natural gas in India at a third more than the price of naphtha, prompting users to switch to the cheaper feedstock, said an official at one of the nation’s biggest fertilizer companies.

Shell is charging as much as $22.50 per million British thermal units, excluding transportation, for LNG, used by local power producers and fertilizer makers, the official said, asking not to be named because fuel pricing is confidential. The price of naphtha of equivalent calorific value is about $17, he said.

The cost of naphtha has dropped to the lowest level since February 2007 and the rupee has fallen by about 15 percent against the dollar since August, prompting users to switch to the domestically produced fuel rather than imported LNG.

“India is very long on naphtha and because there’s no demand outside it will be pushed into the fertilizer sector,” said Tony Regan, an adviser with Nexant Ltd., a U.S. energy consultant. “I can’t see India sustaining high LNG prices.”

Hazira LNG Ltd., a venture between Shell and Total SA, is the only spot LNG importer in India currently.

“We source LNG at competitive market rates and prices of LNG have been competitive against liquid fuels, including naphtha,” Shell’s spokesman in India, Supriyo Gupta, said in an e-mail today.

Spot LNG prices in India are between $21 and $25 per million Btu, Anthony Barker, director of BG Exploration & Production India Ltd., said at a conference in Delhi on Oct. 3.

“India’s fertilizer makers prefer naphtha as LNG is comparatively more costly,” R.S. Sinha, a research officer with the Fertilizer Association of India in New Delhi, said by phone.

Gas Demand

The nation’s fertilizer sector has a deficit of 14 million cubic meters a day of gas and power generators face a shortage of 25 million, which combined account for about 40 percent of current gas consumption.

The price of LNG paid by Japan and South Korea, Asia’s biggest importing nations, has declined in the past month because of cooler summer weather, lower demand from generators and high inventories.

China may not buy LNG from the spot market in October because of adequate local supplies, an official with knowledge of monthly purchases, who declined to be named, said on Oct. 8.

Shell’s Hazira terminal has been importing an average of three cargoes a month since June, according to transmissions from ships captured by AISLive on Bloomberg. It is scheduled to receive two cargoes this month.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at[email protected]

Last Updated: October 14, 2008 04:45 EDT

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