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Business News/ Politics / News/  Govt seeks ways to save fuel cost in fertilizer units
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Govt seeks ways to save fuel cost in fertilizer units

Govt seeks ways to save fuel cost in fertilizer units


Mumbai: In a move that could save more than Rs5,600 crore in fertilizer subsidies, the department of fertilizers has suggested that fertilizer plants along the coastline should consider using specialized offshore vessels for regasification of liquefied natural gas (LNG).

LNG is a feedstock for fertilizer plants and is shipped as a liquid under high pressure, but is reconverted into gas before being transported through pipelines to retail users.

The government’s move assumes significance as the draft fertilizer policy, which is awaiting the Union cabinet approval, has made it mandatory for the fertilizer firms to switch from naphtha to natural gas by 2009. LNG prices in the past year have shot up from $8.75, or Rs344.75, per million British thermal unit (mBtu) to $11.23 per mBtu. Including the cost of regasification and marketing margins, the delivered price of imported LNG in India has been around $14 mBtu. The cost of offshore regasification is around 25% less than that of onshore regasification.

Initially, the department has suggested the move for the five coastal fertilizer plants—SPIC Tuticorin; Madras Fertilizers Ltd, Chennai; Fertilizers and Chemicals Travancore Ltd, Kochi, Zuari Industries Ltd, Goa; and Mangalore Chemicals and Fertilizers Ltd, Mangalore. These plants currently use naphtha.

In October, the department had asked the Fertiliser Association of India, the industry’s representative body, to commission a feasibility study on the possible use of floating terminals, known as floating storage and regasification units.

A senior official of the department who didn’t want to be named said: “The government has been looking for alternative sources of feedstock for the fertilizer plants, especially natural gas. But at current prices, the imported spot cargoes of LNG are proving unviable for the fertilizer industry. We are considering a proposal to switch to floating regasification facilities which will bring down the delivered price of LNG significantly."

The feasibility study conducted by Infraline Energy Research, a New Delhi-based energy consultancy firm, pointed out that by switching to floating terminals in the short term will allow the five coastal fertilizer plants to buy and spot LNG cargoes and save around $6 per mBtu on their production costs. This translates into an annual saving of Rs1,120 crore for the five plants for 1.8 million tonnes of fertilizers.

Chairman and managing director of Rashtriya Chemicals and Fertilizers Ltd and chairman of the industry association U.S. Jha said: “Natural gas cargoes are available in the international markets in the spot markets. But the price at which R-LNG is sold in India makes it unviable for us to buy. In switching to floating terminals we will be able to get the same cargoes at $11-12 an mBtu. Currently, our Trombay plant buys naphtha at $20 per mBtu, if it comes down to $11-12, we will benefit."

The study points out that by using floating terminals, the SPIC plant can save up to $5.93 per mBtu, while the savings for the Zuari plant could be as much as $8 an mBtu. “The saving that we have worked out is for the current demand from fertilizer companies alone, but with the growing demand for natural gas among other industries, the cost of regasification could come down to a third as the scale of operations goes up. This will mean a tripling in savings," said Yogesh Garg, chief executive officer of Infraline Energy.

According to the report, between 2008 and 2009 around eight such vessels are likely to become available. Three of them?have?a?capacity of 125,000 cu. m of gas each, while each of the other five have a capacity of 150,000 cu. m.

Floating regasification vessels are currently in use at two locations globally, the Gulf Gateway deepwater port in the US and the Teesside gas port in the UK.

Given the current non-availability of long-term LNG contracts in the international markets, most fertilizer firms have been using naphtha. Plants, such as the Rashtriya Chemicals and the fertilizers unit at Trombay in Mumbai, that have switched to natural gas a couple of years ago, are also currently using naphtha.

However, with naphtha touching $22 per mbtu, the government has been looking for an alternative as the rising naphtha prices directly impact the government’s subsidies to the sector.

According to department of fertilizers, subsidies for the sector were estimated at Rs28,000 crore for the current fiscal year, but are expected to rise by Rs2,000 crore in next fiscal year, given the rise in fertilizer consumption.

India does not have any offshore regasification facility—both the operating regasifiaction terminals are onshore, in Gujarat. Three more are being planned at Dabhol in Maharahstra, Mangalore in Karnataka and Kochi in Kerala.

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Published: 03 Feb 2008, 11:59 PM IST
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