Fertiliser units may get more domestic gas than power plants

Fertiliser units could get higher share of domestically produced gas than the power plants, if the suggestions of a high-power panel are accepted.

The Inter-Ministerial Committee on Policy for Pooling of Natural Gas Prices and Pool Operating Guidelines has recommended that fertiliser and power sectors be given priority in allocation of domestic gas which is cheaper than imported gas.

But fertiliser units would get the first preference, with 75 per cent of even their incremental consumption to be met by domestic natural gas.

This would mean that fertiliser units maybe allocated up to 80 per cent of their requirement from domestically produced gas during the 12th Five-Year Plan from 2012-13.

Power plants, on the other hand, may be able to source only 40 per cent of their demand from domestic gas, while having to depend on costlier imported R-LNG for the balance by 2016-17.

Currently, domestic gas costs $4.2-5.5/mBtu (without taxes and levies) and R-LNG spot prices are $10-14/mBtu.

The Committee's report, submitted last month, has assumed a worst-case scenario of domestic gas output remaining unchanged at 132.50 million standard cubic metre a day (mscmd), based on the low production levels reached this June. After netting out pipeline internal consumption, injection and flaring (11.13 mscmd) and LPG/C2-C3 — ethane and propane — extraction (10.78 mscmd), 110.59 mscmd would be available for general consumption.

Of this 110.59 mscmd, the Committee has suggested that the allocations for power and fertiliser be kept at their adjusted June 2011 drawals of 56.37 mscmd and 32 mscmd. The supplies for piped gas, CNG and other Court-mandated consumers (units near the Taj Mahal) may also be maintained around their existing levels of seven mscmd.

Besides, there are ‘non-priority' industries such as petrochemicals and sponge iron that currently consume some 18.4 mscmd of domestic gas. To avoid excessive shock from having to substitute this entire gas with R-LNG, the Committee has sought to set aside five mscmd for these users.

That leaves a surplus of roughly 10 mscmd, which can be re-allocated for fertiliser and power. But here, the Committee — headed by the Planning Commission Member, Mr Saumitra Chaudhuri — has sought that the incremental needs of the fertiliser sector be met first from domestic gas.

During the coming Plan period, new urea plants would require 14 mscmd of gas, while de-bottlenecking and feedstock conversion of existing naphtha and fuel oil-based units will take up another 14 mscmd. Since three-fourths of this additional 28 mscmd is to be fed by domestic gas, it would cut into even the current allocations for power plants.

The report estimates gas consumption by power plants to go up by 45 mscmd during the 12th Plan, which also provided for about 12,200 MW of new capacities being created.

However, all of this requirement (and more) will have to be bridged by imported R-LNG.

The situation can still be salvaged if domestic gas output increases. In the event of production touching 199 mscmd by 2016-17 – a “reasonably feasible” proposition – power plants will have to import only 27 per cent of their gas needs, as opposed to 60 per cent in the “no-increase scenario”.

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