Fertilizer and power companies hoping to revive their idle plants with gas delivered by Reliance Industries Ltd (RIL) from findings in the Krishna-Godavari (KG) basin may?have?to?rethink?their plans.
That’s because RIL wants to price its gas at $4.71 (Rs193.11) per million British thermal units (mBtu), according to analysts tracking the energy sector who did not wish to be identified. This is the price quoted for “wellhead” gas and the typical price onshore, where the power or fertilizer plants may be located, could be around $5.71 per mBtu.
This, said the analysts, translates into Rs2.89 a unit for power plants. They pointed out that this number is higher than the Rs1.29 per unit quoted by Lanco Infratech Ltd for the ultra mega power plant at Sasan, Madhya Pradesh (in the next one month, the government will take a final call on whether Lanco will continue to develop this project, after a change in the constitution of the original consortium it was part of) or Rs2.29 a unit as quoted by Tata Power Ltd for the ultra mega power plant at Mundra, Gujarat.
These plants are coal-based and will generate 4000MW each. Mint had previously reported that RIL was in discussions with fertilizer firms to supply gas at $4.5 per mBtu.
A senior executive at a Mumbai-based power firm, on the condition of anonymity, said the Rs2.89 per unit price for gas was too high. “At this rate, I cannot put up a new power plant based on KG basin gas, as my cost of generation would be quite high, especially in a scenario where I am competing with the cheaper coal-based power. The only time it makes sense for me to buy this gas is if I already have a gas-based plant lying idle.”
India’s power and fertilizer plants are hit hard by the gas shortage. The Union ministry of petroleum and natural gas estimates that India will need around 180mscmd (million standard cubic metres of gas per day) in 2007-08. It expects supply to be around 81mscmd, and has said the shortage will persist till 2012.
Given the focus on tariff-based bidding, where the lowest-cost supplier tends to win the rights to build the plants, India may have to continue to rely on thermal energy to provide stable power supply to meet the needs of an economy that expanded 9.4% in 2006-07. Alternatively, power regulators at the state and national level would have to allow power firms to charge a much higher tariff to use environmentally less polluting fuels such as gas.
The $4.71 per mBtu average price could change depending on when the supply contracts are actually signed. Factors such as the rupee-dollar exchange rate and the price of crude oil will decide the final price of gas at the time of signing each contract. According to Yogesh Garg, CEO of energy consultant Infraline Energy, the gas price could range between $1.87 per mBtu and $6.62. Currently, gas prices are about $8-10 per mBtu, though prices are significantly lower on long-term contracts.
With large coal-based power plants producing power much cheaper, the projections of capacity addition based on low-cost natural gas may have to be reworked, said experts. In this respect, India is not unique: the use of coal as the fuel of choice for generating electricity is seeing a revival worldwide with the emergence of cleaner technologies designed to reduce emissions. Coal-based power is also a hedge against dependence on hydrocarbons whose supply sources are concentrated in the politically volatile West Asia.
RIL invited bids from five power generation firms and five fertilizer firms in a bid to discover the market price of gas from its KG basin fields. Gas production from these fields is expected to begin from 2009. The power firms invited to bid are Tata Power Co. Ltd, Torrent Power Ltd, Maharashtra Power Generation Co. Ltd, Konaseema Power Ltd and GVK Power & Infrastructure Ltd. Rashtriya Chemicals and Fertilizers Ltd, Krishak Bharti Cooperative Ltd, Indian Farmers Fertiliser Cooperative Ltd, Chambal Fertilisers Ltd and Nagarjuna Fertilisers Ltd were the fertilizer firms.
National Thermal Power Corp. Ltd, India’s largest power generator, and the Anil Ambani-owned Reliance Energy Ltd have separate agreements with RIL for buying gas at a lower price. However, both are currently being disputed in the courts.