Fertiliser plants to get first priority over domestic gas

Over $21 billion powers plants being stranded for want of fuel notwithstanding, fertiliser plants are likely to be first claimant on any incremental gas output as producing urea from imported gas is unsustainable.

 

No fertiliser plant in the world is run entire on imported LNG (gas turned into liquid for ease of shipping) due to high cost of production, industry sources said.

 

Urea-manufacturing cost is broadly divided into two types - fixed cost that includes plant and machinery, manpower, etc, and variable or operating cost that is the cost of fuel. Urea plants in India have a fixed cost of $148 per tonne.

 

The variable cost translates into $21 per tonne for every dollar per million British thermal unit of gas cost.

 

With delivered price of liquefied natural gas (LNG) being no less than $15 per mmBtu, the variable cost alone comes to $315 per tonne. Adding fixed cost, the cost of production would come to $463 per tonne.

 

This cost compares to $340 per tonne average urea import price in the April-June quarter and $417 per tonne import price in 2012-13.

 

Sources said imports would be cheaper than producing urea using only imported LNG.

 

Considering this, an Empowered Group of Ministers (EGoM) headed by Defence Minister A K Antony may not give any significant natural gas to the fuel-starved power plants till domestic production rises in 2016-17.

 

Things have been complicated by fall in output at Reliance Industries' eastern offshore KG-D6 field to under 14 million standard cubic meters per day. It is projected to 11 mmscmd this fiscal before rising to 19 mmscmd in the first quarter of 2015 and remain at that level till 2016-17.

 

The fall in KG-D6 from 62 mmscmd achieved in March 2010 means 25 power plants that signed up for 29.74 mmscmd of KG-D6 get no gas.

 

Sources said the Oil Ministry carried out a detailed exercise on instructions of EGoM to assess additional gas available and the demand.

 

About 4-5 mmscmd additional gas will be available from fields of ONGC and GSPC in 2013-14. A similar additional volume may be available in the next fiscal and a further 2 mmscmd from GSPC in 2015-16.

 

This additional production will have to make up for fall in KG-D6 this fiscal and the next as also meet 3.8 mmscmd need of 5 newly converted fertiliser plants for whom allocation had previously been approved by the Cabinet and EGoM.

 

Also, 2.95 mmscmd has to be given to LPG extraction plants of GAIL and ONGC, they said, adding LPG has been given second priority after urea manufacturing units.

Moreover, there will be an additional demand of 2.17 mmscmd of gas for petrochemical plant of ONGC at Dahej. The EGoM had at the time of deciding priority of gas allocation, had taken a call that all molecules from the gas should be extracted before it is burnt as fuel. ONGC's C2/C3 plant will fit into that priority.

 

Sources said out of additional availability of 4-5 mmscmd in 2014-15, availability for power sector would be 2-3 mmscmd. Most of this will flow to the Dabhol power plant that had been given equal priority as fertiliser plants after its revival at a cost of Rs 13,000 crore. No KG-D6 gas flows to the plant now despite it being allocated 7 mmscmd of KG-D6 gas.

 

Additional availability of about 10 mmscmd during 2015-16 could be provided for the power sector, they said adding further availability of 29 mmscmd from ONGC during 2016-17 and 11 mmscmd from RIL's R-Series fields in KG-D6 block in 2017-18 would be sufficient for power and fertiliser sectors.

 

For the present, the power sector may be asked to consider buying more imported LNG to produce electricity.

 

At present, only a third of the 72 mmscmd of gas needs of the 18,713 MW gas-based power plants is being met. Another 8,000 MW capacity is almost ready for commissioning but there is no gas availability to fire the plants.

 

At its last meeting, EGOM rejected the proposal to snap natural gas supplies to urea plants and divert that fuel to power companies.