The Hindu Business Line : Gujarat industry substituting LNG with naphtha

Kolkata, Nov. 2 Having suffered from acute energy crisis leading to skyrocketing price of energy for almost eight months, especially during the last six months, the industries in Gujarat are now enjoying abundant supply of low-cost energy thanks to over 60 per cent meltdown in global naphtha price.

The booming market for spot LNG — which was selling in India at $20 (ex-ship) for every million metric British thermal unit (mmBtU) in September and $17/mmBtu in October — is now facing a major demand slowdown as large users in the power and fertiliser sector have started replacing the re-gassified LNG with low-cost naphtha during last two weeks. With little change in naphtha price outlook, the trend may only gather strength.

According to sources, among the power utilities that started replacing high-cost gas are NTPC Kawas, Gujarat Paguthan Energy (GPEC), Essar Power and others. Needless to say that if the trend continues, it may bring down the power tariff. “Forget about the energy crisis, Gujarat is now witnessing an energy boom,” an oil and gas analyst told Business Line.

While comments were not available from Shell — the primary supplier of spot LNG in India through its Hazira terminal — sources say the company had brought only one cargo in October, compared to an average of over three during the first half of 2008. The arrival of the next cargo is yet to be decided. Shell had enhanced the terminal capacity from 2.5 million tonnes to 3.5 mt this year through de-bottlenecking.

Rapid slide

Globally naphtha prices have come down by almost two-thirds — from as high as $1200 a tonne in June-July to $300 a tonne (landed price) due to demand slow down from petrochemicals sector. The slide was so fast that naphtha is currently ruling below crude prices (and even fuel oil) resulting approximately $20 negative spread for refiners in October.

In India, public sector oil companies have cut naphtha prices by nearly 35 per cent to approximately $425 (for power sector) on November 1 compared to the previous fortnight. Accordingly, naphtha is now available for power sector at $14.2/mmBtu compared to $28-30/mmBtu in August and around $22/mmBtu in September. Prices are softer for the fertiliser sector.

As oil PSUs use historic price average for current market pricing, naphtha prices may fall further in India in the coming weeks.

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