India fears lower crude prices could hurt coal-to-liquid plans

India fears lower crude prices could hurt coal-to-liquid plans
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First Published: Tue, Jan 06 2009. 10 19 PM IST
Updated: Tue, Jan 06 2009. 10 19 PM IST
New Delhi: India is worried that the financial slowdown will result in lower crude oil prices and affect its ambitious coal-to-liquid, or CTL, energy security programme.
CTL involves the conversion of coal into liquid fuels such as diesel and petrol, a process that is economically viable only when crude prices are high.
“The inter-ministerial group is looking into the whole issue. Informally, the issue of the project getting affected due to the financial downturn and the private sector not having enough money to invest has cropped up,” said a person familiar with the development, who didn’t want to be named.
The government plans to award the Bankhui, Sakhigopal B and Alaknanda coal blocks in Talcher district of Orissa that can support production of 3.5 million tonnes of oil and petroleum products. The total cost of the project is estimated at $8 billion (Rs38,960 crore).
Private sector firms such as Tata Sons-Sasol, Jindal Steel and Power Ltd, Reliance Industries Ltd, Reliance-Anil Dhirubhai Ambani Group, Essar Oil Ltd and Adani Group have previously expressed interest in the project.
Some of the companies are still confident of the project’s economic viability.
“We have to take a long-term view for this project. This time can be utilized for doing a lot of spade work. Oil prices will not remain at the same level and will go up. This kind of project takes three-four years, and the time now is the right time to negotiate better rates and delivery schedules from the equipment vendor,” said a senior Jindal Steel executive, who asked not to be identified.
There was a resurgence of interest in proven but expensive technologies such as CTL when crude prices touched $140 a barrel. Since then, however, the global economy has slowed and crude prices have plunged. Crude oil was trading at $50.28 per barrel at the New York Mercantile Exchange on Tuesday at the time of filing of this story.
India sees energy security as key to sustaining economic growth. The country imports 78% of its fuel needs and its integrated energy policy sees CTL technology as an option. Coal already accounts for at least 50% of India’s commercial energy consumption.
Rohit Nagaraj, an analyst at Angel Broking Ltd, had earlier said the “threshold (price of crude) for production from CTL blocks is around $80 per barrel. If the crude oil prices remain above this level, then CTL is economically feasible”.
“The financial downturn, coupled with fall in crude prices, may have an adverse impact on the economics of coal-to-liquids conversion project, which may necessitate reassessment of feasibility by the project developers. However, the criticality of an alternative source of transportation fuel from relatively abundant coal reserves in India still remains unchanged,” said Dipesh Dipu, principal consultant, mining, with audit and consulting firm PricewaterhouseCoopers.
India has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum is mined.
“This may be the time for all the stakeholders to converge on policy issues, including fiscal measures, coal block allocation, marketing and distribution rights, profit share and price participation from the CTL projects,” added Dipu.
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First Published: Tue, Jan 06 2009. 10 19 PM IST
More Topics: Crude Prices | Coal | India | Fuel | Energy Security |