New Delhi/Ahmedabad: NTPC Ltd has been unable to buy enough liquefied natural gas, or LNG, to run its power plants and has been forced to use alternative fuel naphtha, which is around 50% more expensive.
The state-owned company, India’s largest power generator, cannot automatically pass on the increase in cost to its customers and it will, at least for the next six months, live with the losses on this account. Nearly one-fifth of NTPC’s power generation capacity of 2,7404MW is fuelled by gas.
NTPC sources some part of its requirement of gas from the spot markets because supplies through long-term contracts are not available on account of global demand for gas exceeding supply; given this, gas producers can get a better price in the spot markets than through long-term contracts. If its power plants run at 80% efficiency, NTPC has a total gas requirement of 12 million standard cubic metres per day (mscmd). The amount of gas the company buys in the spot markets varies, but in the last tender it floated (on 19 December), it sought 7mscmd of the fuel.
However, there is little gas in the spot markets, and that which is available is priced high, although at around $18 (Rs711) per million British thermal units (mBtu), it is still less than the price of naphtha ($28, or Rs1,106 per mBtu).
“Though it is very expensive, we are running some of our gas-based capacities on naphtha. We do not have an option as we have not found any takers (suppliers) to fulfil our requirement. Our other problem is high LNG spot cargo prices of around $18 mBtu—we believe that our costs are bound to increase,” said a senior NTPC executive, who did not wish to be identified.
NTPC could find gas prices increasing further. The price of crude recently rose to more than $100 a barrel and the fuel was trading at $98.56 on Friday evening (Nymex crude). LNG prices are directly linked to crude prices. “LNG spot prices will further increase due to sharp volatility in the crude prices,” said Prayesh Jain, an analyst at stock market research firm India Infoline.
The last LNG cargo NTPC received was in the first week of December. Its 19 December tender closes on Monday. “We generally float the tenders 10 days before our spot LNG stocks run out. This could not happen this time. We have been talking to spot LNG providers in the country and are hopeful that something will come out of it,” the NTPC executive said.
An executive at a company that supplies LNG said it might not be as easy as that. At current levels of availability and pricing of the fuel, NTPC would not be able to buy gas “for the coming six weeks”, added this executive, who did not wish to be identified.
NTPC has seven power plants fuelled by gas or liquid fuel with a total capacity of 3,955MW; it also runs a 740MW gas-based plant through a joint venture. However, these projects are currently operating at lower levels of utilization and efficiency because of inadequate availability of the fuel.
The company cannot raise tariffs without approval from the state governments to which it sells power. If its customers, the electricity boards of various states, do not agree to an increase in the price of power, the firm has to either reduce the amount of power it generates or bear the losses.
An ongoing court battle with Reliance Industries Ltd over the supply of gas to be sourced from the company’s fields in the Krishna-Godavari basin has already delayed NTPC’s plans to expand its power generation capacity by 1,450MW in the five years to 2007.
Analysts say it is important for power generators such as NTPC to sign long-term contracts to secure their energy supplies.
“Gas availability has always been a problem...for NTPC. At $20 per mBtu (for gas), no state will be in position to buy...power and NTPC’s gas- based plants’ efficiency will continue to dwindle. However, gas supply from KG basin and Nigeria could be saviours for the company, but not before mid-2008,” said Abhishek Puri, associate analyst at JM Financial Ask Securities Pvt. Ltd.
India imports around 3 million tonnes per annum or 12mscmd of gas bought in the spot markets. This is primarily sourced by Shell India Pvt. Ltd and Petronet LNG Ltd. The balance comes from local production and long-term supply contracts with overseas sellers.
The ministry of petroleum and natural gas estimates that the country will need around 180mscmd of LNG in 2007-08. It expects supply to be around 81mscmd and projects that the fuel shortage will persist till 2012.