Calcutta, July 13: Decks have been cleared for the proposed liquefied natural gas (LNG) terminal in Bengal after the developers struck a deal with an Indonesian firm for the gas.

The Spice group, which is building an oil refinery in Haldia, plans to set up a 2.5-million-tonne LNG terminal in the port town at an estimated investment of Rs 1,000 crore.

The LNG project, though conceived ahead of the refinery, was not making much headway as the developers, having interests in aviation and energy, failed to source the gas.

But after the contract with Indonesian energy company Pertamina, the group hopes work on the project will start soon. “We are assured of the gas supply now. The biggest hurdle for the project has been overcome,” sources familiar with the development said.

Engineering work for the unit will begin soon, and the project is expected to be complete by the end of 2011.

At present, the group is tying up with potential customers in the eastern region. It is likely to find buyers among fertiliser and power companies.

LNG is natural gas that is turned liquid at minus 163 degree Celsius and then carried in specially designed ships from producer countries to consuming nations such as India.

After its import, the liquid gas is re-gassified and piped to consumers.

At times, LNG is also supplied in special containers to customers. It is a cleaner fuel than coal or oil.

The long-term availability of LNG has been a cause for concern among users across the globe.

As crude oil prices shot up, so did LNG prices.

Producers in West Asia, Australia and Southeast Asia were not willing to sell the gas at a fixed price.

They wanted to sell it on a spot-price basis, riding on the unprecedented surge in global crude oil prices.

It is learnt that Pertamina will sell the bulk of LNG at a price linked with the crude oil price.

A part of the gas will, however, be sourced at fixed rates.

LNG produced from the Haldia unit will have to compete with Reliance’s gas from the Krishna-Godavari basin. Spot LNG price is now hovering at $13 per mmbtu (million British thermal unit).

The other challenge the project may face is the shipment of LNG to the re-gassification terminal at Haldia where the river water draft has gone down alarmingly preventing big ships from anchoring.

The developers claim it will not be a problem as LNG can be brought in small ships. If required, it can be transferred from big ships to small barges in the deep sea and then brought to the port.

India has two operating LNG terminals — both in Gujarat. The oldest one is at Hazira where Petronet LNG runs a 5-million-tonne terminal. The other one is at Dahej, run by Shell. A new terminal is coming up at Dabhol in Maharshtra.

Petronet is also building another terminal at Kochi in Kerala. There are a few more in the pipeline.