Imported natural gas may fuel power, fertilizer production
3 min read . Updated: 22 Apr 2012, 10:41 PM IST
PremiumGrowing demand: NTPC’s power plant in Dadri. The power sector currently consumes 80 million standard cubic metres of gas per day.
Imported natural gas may fuel power, fertilizer production
New Delhi: India’s quest to significantly boost its power generation capacities and the production of fertilizers such as urea in the next five-seven years could make it extremely dependent on imported natural gas, government officials and analysts say.
In fact, the government’s own estimates are even more bullish.
The oil ministry had said in October that by 2016-17 alone, the demand could go up to 473 mscmd and cross the 600 mscmd mark by 2021-22. Out of this, 210 mscmd is likely to be produced locally and the remainder may have to be imported, according to oil ministry estimates.
While the projected shortfall is mostly because of growth in demand, falling domestic output, especially from the D-6 block of the Krishna-Godavari (KG) basin operated by Reliance Industries Ltd (RIL), has added to it. Industry estimates say that by FY13, the KG D6 block is likely to produce no more than 28 mscmd of gas, compared with 41 mscmd by the end of 2011.
Natural gas is the chief feedstock required for generating power and manufacturing products such as urea, steel and for refining activities. In the case of locally produced urea, it constitutes 70-80% of the total cost.
The government is in the process of finalizing an investment policy for setting up urea plants in the country. Fertilizer ministry officials estimate that if the policy succeeds in attracting investments, it could mean that urea production could be raised by around 10 million tonnes (mt). “It would require at least 22 mscmd of gas over the next four-five years. Most of it would be imported," said a fertilizer ministry official, who declined to be named.
India produces 21-22 mt of urea, compared with a domestic demand for 28-29 mt. Fertilizer ministry estimates say that by 2016-17, this demand could touch 34 mt.
Companies, typically, get gas under the administered pricing mechanism (APM) and that from the KG D6 gas fields of RIL at a base price of $4.2 per million British thermal units (mmBtu).
ONGC C-series gas is sold at a base price of $5.25 per mmBtu, while gas from the Panna-Mukta-Tapti fields is priced higher at $5.6-5.7 per mmBtu. The final landed cost of this gas is typically higher by about $1-2 per mmBtu.
The shortfall is made good either by long contract imported regasified liquefied natural gas (R-LNG) or via the spot market. In each case, the landed cost of gas varies between $12-18 per mmBtu.
In fact, an October report by ratings agency Icra Ltd says that by 2019-20, the fertilizer sector’s demand for gas would double to 82 mscmd from the 41 mscmd it currently requires.
The report goes on to say that the power sector, which presently consumes 80 mscmd, is likely to require 184 mscmd of gas in the next 10 years. Refineries are likely to require 73 mscmd by 2020, up from 23 mscmd at present.
The Icra report, cited earlier, says that while by the last year, India was generating nearly 18,000 megawatts (MW) of power through gas-based plants, the country is expected to add 8,400MW to this by 2012-13.
An analyst with the Fertilizer Association of India, an industry lobby group, points out that even if the country wants to import more gas, it could face capacity roadblocks.
Currently, it has just two LNG terminals in Gujarat—one at Dahej, operated by Petronet LNG Ltd and the other at Hazira, operated by Hazira LNG Pvt. Ltd.
Such terminals are typically purpose-built ports to exclusively import and export gas.
“Typically, setting up an LNG terminal requires a capital expenditure of a billion dollars; so it is not a cheap proposition," the official said, requesting anonymity.
While at least four new terminals have been proposed, none of them are expected to come on stream before 2015.
While Petronet LNG is expected to set up a new 5 mt per annum (mtpa) capacity terminal at Kochi in Kerala in the next two years, on 26 March Indian Oil Corp. Ltd announced that it would set up a terminal of a similar capacity by 2015 near Chennai, Tamil Nadu.
GAIL (India) Ltd has also tied up with GDF Suez LNG UK to set up a so-called 4 mtpa floating terminal off the coast of Andhra Pradesh at an estimated cost of ₹ 2,000 crore.
aman.m@livemint.com
