Gas-fuelled project operators in India say prices will stay depressed in the medium term thereby making a case for using the relatively cleaner fuel for balancing the nation’s electricity grid. (Bloomberg)
Gas-fuelled project operators in India say prices will stay depressed in the medium term thereby making a case for using the relatively cleaner fuel for balancing the nation’s electricity grid. (Bloomberg)

Virus  outbreak fires up India’s stranded gas-fuelled projects

  • Plant operators are looking to revive their gas-fired capacity, which accounts for 7% of India’s total capacity
  • Gas comprises about 6.2% of India’s primary energy mix, far behind the global average of 24%

NEW DELHI : The coronavirus outbreak has thrown a lifeline to India’s stranded gas-fuelled power plants with global liquefied natural gas (LNG) prices plunging to less than $3 per million British thermal units (mmBtu) from a peak of $11.3/mmBtu in September 2018.

Plant operators are looking to revive their gas-fired capacity, which accounts for 7%, or 24,937.22 megawatts (MW), of India’s total capacity.

A case in point being Gujarat, which plans to leverage the prevailing lower prices to kick-start its 2,200 MW gas-fuelled projects that depends on imported gas, the state’s energy minister Saurabh Patel said in an interview.

“Right now, we are working on our gas-based capacity because the gas price has become very low," Patel added.

State-run China National Offshore Oil Corp.(CNOOC), China’s biggest LNG importer, has suspended contracts sending the LNG markets into a tailspin.

This comes against the backdrop of India, the world’s fourth-largest LNG importer, building up its LNG portfolio with domestic companies having inked long-term LNG contracts totalling 22 million tonnes per annum (mtpa). India consumes around 145 million standard cubic meters a day (mmscmd) of gas.

Mint reported on 10 February on Indian firms’ hunt for bargains on diverted cargoes of crude oil and LNG, with Chinese energy majors declaring force majeure to avoid taking delivery of some cargoes.

“Spot LNG prices have halved y-o-y (year on year) to $3/mmbtu due to global gas supply glut. With China’s LNG imports collapsing due to coronavirus, the weakness has exacerbated with forward rates falling to mere $2.5/mmbtu. Consequently, cost of gas-based power has fallen to 2.4/unit, at just 20% premium to thermal power, heralding a tectonic shift in India’s power mix," wrote Edelweiss Securities Ltd in a Monday report.

Besides leveraging the lower prices to source spot LNG cargoes at bargain rates, gas-fuelled project operators in India believe that prices will stay depressed in the medium term thereby making a case for using the relatively cleaner fuel for balancing the country’s electricity grid.

“It is a very conducive market for spot cargoes," Patel said. “It is a commodity. All commodity prices are based on demand and supply. So, right now because of the demand going down in China, the supply being there, the prices are going to go low."

Gas comprises about 6.2% of India’s primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030.

India’s gas demand is expected to be driven by the fertilizer, power, city gas distribution, and steel sectors. India’s energy demand is expected to grow at 4.2% per year over the next 25 years.

Given India’s ambitious green energy programme based on infirm sources such as wind and solar, this gas-based capacity can provide the stability in the electricity grid as it can be brought online at a short notice as compared to coal-fuelled projects.

India is running what will become the world’s largest clean energy programme, with an aim of having 175GW of clean energy capacity by 2022.

“Given the current gas price scenario, electricity generated from such gas-fuelled projects will come under the merit order," said Patel.

Electricity is only procured from those power projects that rank high in the so-called merit orders wherein the electricity generated by them is cheaper than the rest.

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