NTPC Ltd, India’s largest power generation company said the price at which analysts expect gas from new fields to be sold, at $4.50 (Rs184.50) per million British thermal unit (mBtu), is too high.
The company has threatened to drop the expansion plans for its gas-based projects if this is the cost of gas.
“We are not in favour of domestic gas being priced in the range of around $4.50 per mBtu as it will increase our input costs,” said a senior NTPC executive who did not wish to be named.
Mint had earlier reported that Reliance Industries Ltd (RIL) was negotiating with a clutch of domestic fertilizer firms to sell its gas at $4.5 per mBtu.
Currently, gas prices in the spot markets are about $8-10 per mBtu, though prices are lower on long-term contracts.
NTPC sells power at an average cost of around Rs1.67 per unit, the lowest in India.
The company is state-owned and cannot raise tariffs without approval from the government.
The power firm is also involved in an ongoing court battle with RIL over the supply of gas to its power plants in Gujarat.
This has delayed its plans to enhance capacity by 1,450 megawatt (MW) in the 10th Plan (2002-07).
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.
The gas RIL wants to sell is from its find in the Krishna-Godavari Basin. Its price of $4.50 will be the benchmark for all domestically produced gas in the country. Analysts said at this price, gas is a cheaper alternative to naphtha.
Fertilizer and power plants are the major consumers of naphtha and gas. When contacted, a RIL spokesperson declined to comment.
“If asked to pay the same price ($4.50), we may even put our gas-based expansion plans on hold. This may affect our expansion plans at our gas-based power stations such as Kayamkulam, Anta, Auraiya and Faridabad among others,” added the NTPC executive.
NTPC has a power generation capacity of 27,404MW and plans to become a 50,000MW firm by 2012.
Out of the 22,596MW that the company plans to add in the next Plan period, 15,180MW will be through coal-based generation, 4,550MW through gas-based generation with the balance being met through hydro- based generation.
“Gas pricing is reflective of the crude oil prices. Getting gas at $4.50 per mBtu still makes it more competitive than using naphtha or oil for generation,” said Kuljit Singh, a partner at audit firm Ernst & Young.
Shortage of gas has forced NTPC to enter the gas exploration business.
The state-owned power utility made the first move in 2005, when it managed to win one gas block in Arunachal Pradesh.
It is currently looking for partners to participate in the next round of bidding for exploration blocks.