World's third largest oil firm Royal Dutch/Shell will source petrol and diesel from Mangalore Refinery and Petrochemicals Ltd for its upcoming 2000 petrol stations in the country.

Shell India Pvt Ltd, on January 5, signed a memorandum of understanding with MRPL, a subsidiary of Oil and Natural Gas Corp, for buying transport fuels, sources in MRPL said in New Delhi.

"The two companies will work out the pricing and other terms," they said.

Shell has secured a conditional licence to set up 2000 petrol stations in the country for retailing transport fuel. It had earlier announced plans to set up its first petrol pump by June this year.

MRPL and Shell will also share storage and handling infrastructure.

ONGC, which plans to fuel its upcoming 1100 petrol pumps throughout the country from the 9.69 million tonnes Mangalore refinery, is in the process of setting up storage and other marketing infrastructure and the MoU with Shell will help avoid duplication of the costly infrastructure.

"Shell India Pvt Ltd will indicate to MRPL their requirement of products on a quarterly basis and pricing decided on the basis of a formula to be worked out between the two," sources said adding quality of the products will be governed by the specifications laid down by the Bureau of Indian Standards.

The agreement with MRPL ends Shell's search for a domestic source of petro products. The domestic refining firms - Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd - were not forthcoming in selling their excess production to Shell and preferred to export at discount over breeding competition in backyard.

The agreement is also beneficial to MRPL, which was incurring losses as domestic retailing companies - IOC, BPCL and HPCL - refused to take its entire production.

The three firms between them listed less than 7 million tonnes of products from MRPL and have long resisted its inclusion in the industry logistic plan, sources said.

"The agreement with Shell will provide an outlet for the refinery to operate on its optimal capacity without having to resort to exports at a discount," they said.

MRPL, which is operating at over 100 per cent capacity after being taken over by ONGC in March last year, is the second largest exporter of petroleum products in the country after Reliance Industries Ltd.

It exported 1.9 million tonnes of petroleum products in the first nine months of current fiscal.