Shell Cuts Gas Spot Prices in India as Users Switch to Naphtha

By Dinakar Sethuraman

Jan. 6 (Bloomberg) -- Royal Dutch Shell Plc cut by almost 30 percent the price of natural gas to be sold in India this month because of competition from cheaper naphtha, a buyer said.

The price of the fuel converted from imported liquefied natural gas and sold to local power producers and fertilizer makers has slumped to about $12 per million British thermal units from $17 per million Btu in October, excluding transportation and taxes, said the buyer, who asked not to be identified because a confidentiality agreement. Naphtha, an alternative fuel, costs about $8 based on the equivalent calorific value, he said.

Slowing exports and domestic demand in India have forced companies including Tata Motors Ltd., the country’s biggest truck maker, and Hyundai Motor Co. to cut output, reducing demand for fuels as well as for petrochemicals and plastics made from naphtha. Prices of naphtha in Singapore tumbled 69 percent last year, outpacing crude oil’s 54 percent decline.

“Naphtha prices in India have gone so much below LNG that they are hurting demand for spot cargoes,” said Tony Regan, a Singapore-based independent consultant, and a former Shell executive. Some users can switch to naphtha, derived from crude oil, instead of natural gas.

The price of LNG sold in India has slumped from a record $23 per million Btu in September, the buyer said. No cargoes were imported in November and December, according to transmissions from ships captured by AISLive on Bloomberg.

Shell can’t divulge details of gas shipments and prices because of confidentiality agreements with customers, Deepak Mukarji, a New Delhi-based spokesman for the company’s India unit, said by e-mail on Jan. 2.

Shell operates a 3.5 million tons a year LNG import terminal at Hazira on India’s west coast. Total SA is a partner in the project.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.