India's Reliance Power, Energy Giant Shell Set Up LNG Terminal in Southern Indian Port Kakinada

Based on information provided by an unidentified source close to the matter, International multimedia news agency Reuters (News - Alert) reports that India’s major utility company Reliance Power is talking to the world’s second largest energy company Royal Dutch Shell, popularly known as Shell, to jointly set-up a liquefied natural gas (LNG) terminal. The aim is to secure supplies for Reliance Power’s gas-fired power plant, according to Reuters’ source.

In an e-mail reply to Reuters, Reliance Power said, "Reliance Power keeps exploring various business opportunities. The company would not like to comment on specific business proposal."

Similarly, Reuters’ attempt to get any comments from Shell India spokeswoman was not successful.

According to Reuters, the Anil Ambani (News - Alert)-controlled Reliance Power and energy giant Shell are jointly discussing the formation of a joint venture. While the two companies will hold equal stakes, Kakinada port in the southern Indian state of Andhra Pradesh will own a minority stake, a source close to the situation told Reuters.

In fact, the aim of the joint venture is to set-up the LNG terminal at Kakinada on India's east coast. As per the report, the proposed venture will likely invest 30 billion rupees (US $565.98 million) to set up the LNG terminal. Initially, wrote Reuters, it would supply gas to Reliance Power's 2400-megawatt, gas-fired plant in Andhra Pradesh, which is expected to go into production in 2012.

Reports indicate that India's gas-based power plants are facing uncertainty due to fuel supply shortages. In fact, gas output from the D6 block operated by Reliance Industries, off India's east coast, has dropped significantly, forcing power producers to look for other sources.

An industry official told India’s Economic Times that "The Kakinada port is considered to be an ideal location for setting up an LNG import terminal due to its modern infrastructure, all-weather operations and proximity to gas consumers in Andhra Pradesh."