The Hindu Business Line : NTPC studying entry into LNG supply business

NATIONAL Thermal Power Corporation (NTPC) is exploring the possibility of entering the Liquefied Natural Gas (LNG) supply business for captive purposes.

The central power sector undertaking, which supplies a quarter of the country's power, has set up a small group within the company to examine the viability of this business, according to a senior official.

"The study is at a preliminary stage and if the viability is established, we will like to set up a LNG-based plant on the coast in the Eleventh Plan period," the official said.

So far, NTPC has been on the other side of the fence. It has procured gas through a competitive biding process, involving LNG bid participation, for its proposed 1300 MW-each expansion at Kawas and Gandhar in Gujarat.

It is also in the process of soliciting bids for gas supply for its proposed 2,300 MW power plant at Kayamkulam in Kerala. Currently, it is operating a 350 MW plant at Kayamkulam, using naphtha as a fuel and thus producing expensive power.

Although NTPC did not get an aggressive gas supply bid based on LNG in its Kawas and Gandhar tender, the company is confident that it is possible to take out gas from the depths of the ocean in the West Asian countries, liquefy it to manufacture LNG, transport it to domestic shores, re-gassify it and sell it in the coastal areas at around $3 per million British thermal units (mmbtu).

This is roughly the price that Reliance bid and won the contract for supply of gas to NTPC's plant in Gujarat from its natural gas finds in the Krishna Godavari basin. The next best bid came from Yemen LNG, which quoted over a dollar above Reliance's bid.

The $3 per mmbtu mark has emerged as an unofficial `hurdle tariff' in the Indian power sector, delivering a fuel tariff of around Rs 1 per unit. If the delivered gas price is close to this price, the power tariff is acceptable to the immediate consumer, the state electricity boards and their successors.

With fixed costs remaining largely stagnant, the power tariff is mainly determined by the fuel cost. Viability of higher gas price is restricted by the tariff offered by the competing fuel, coal, which offers a price of around 65-70 paise per unit.

Coal as a fuel has other encumbrances such as environment costs and transmission costs since competitive pricing is derived from pit-head stations. Also, the fixed cost of a coal turbine and boiler is marginally higher.

NTPC is confident that it is possible to realise a gas price of $3 per mmbtu through the LNG route even though the only LNG supplier in the country, Petronet LNG Ltd, offers gas at around $4.5 per mmbtu.

In a recent letter to the Petroleum secretary, Mr S.C. Tripathi, NTPC Chairman and Managing Director Mr C.P. Jain is understood to have quoted a study conducted by Cambridge Energy Research Associates.

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