Gas-starved India has received an offer from the government of Oman that should be hard to say no to: gas, in exchange for coal.
“We have received a very interesting proposal from the Oman government, which has been forwarded to the power ministry by the ministry of external affairs, about their interest in a coal and gas swap around a month back,” said a senior government official familiar with the matter. “We are studying the proposal, which will be very beneficial for our present and future gas-based (power) generation capacity,” added the official, who did not wish to be identified.
If the Indian government says yes, the two countries will enter into a long-term contract where Oman provides India natural gas in exchange for a steady supply of coal.
Indian coal has a high-ash content, one reason why some domestic coal-based power plants mix it with higher quality coal that is imported. However, Oman wants Indian coal for this very reason. Fly ash is a key component in the manufacture of cement and Oman, currently going through an infrastructure and construction boom, needs as much of the building material as it can get.
In return, India will get natural gas, currently in short supply across the world, to run its power plants. Gas is also a key input for fertilizer plants. Several power plants in India that run on gas have had to shut down because of scarcity of the fuel.
Recently, the 2,150MW Ratnagiri Gas and Power Pvt. Ltd’s plant (earlier called the Dabhol Power Co.), India’s largest gas-fired power facility, had to close down because of the lack of fuel.
The two governments are yet to thrash out the details of the agreement, but India wants 5 million standard cubic metres of gas a day (mscmd) or 1.25 million tonnes (mt) of gas a year for every 4.5mt of coal it exports in a year.
In money terms, that volume of gas translates into $520-650 million (Rs2,132-2,665 crore) at current spot rates of $8-10 per million British thermal units (mBtu), although gas is available at lower rates through long-term contracts.
That volume of gas will be adequate to generate 2,000MW of power.
The numbers could change because “the coal and gas quantities are yet to be finalized (by the two governments)”, said the official.
“However, such an arrangement would also assure us a gas supply that too at a mutually acceptable price in a worldwide shortage scenario. The other positive is that gas is a good and clean fuel,” the official added.
Shubhranshu Patnaik, an executive director at audit firm PricewaterhouseCoopers, cal-led the deal a “win-win” one, because “there is a tremendous natural gas requirement in the country”.
The demand for gas in India is currently 179.17mscmd, while supply lags at 80.54mscmd. The country has known coal reserves of 255 billion tonnes, the fourth largest in the world. Coal accounts for more than 50% of India’s commercial energy consumption and around 78% of domestic coal production is dedicated to power generation.
India expects to add power generation capacity of 78,577MW by 2012, of which around 4,289MW will come from gas-fuelled projects.
According to the power ministry, if natural gas becomes available at reasonable price through arrangements such as the one being discussed with Oman, more gas-based projects can be commissioned in the last years of the 11th Plan period (2007-12).