'Real beneficiary will be the government'.
Natural gas from Reliance Industries’ (RIL’s) KG-D6 block may not have any major impact on the bottomlines of the 12 fertiliser companies that have been allocated the supply.
“The cost of energy will reduce for us, as we would be using cheaper gas instead of the costly naphtha or fuel oil. But the benefits would be pass-through. The real beneficiary will be the government,” said a senior official from Chambal Fertilizers & Chemicals.
| GAS ALLOCATED TO UREA UNITS (in mscmd) | |
| Plant | Allocation |
| RCF Thal | 2.10 |
| IFFCO, Aonla | 1.75 |
| Nagarjuna Fertilizer | 1.55 |
| Hazira | 1.37 |
| Chambal, Gadepan | 1.15 |
| Kribhco, Shahjahanpur | 0.98 |
| RFC, Trombay | 0.95 |
| Tata Chem, Babrala | 0.88 |
| GSFC, Vadodara | 0.72 |
| National Fert, Vijaipur | 0.65 |
| Shriram Fert, Kota | 0.62 |
| IFFCO, Phulpur | 0.52 |
| Indo Gulf, Jagdishpur | 0.48 |
| Total | 13.72 |
| Source: Citi investment research | |
Chambal Fertilizers will get around 1.1 million standard cubic metres a day (mscmd) from the KG block. But the company says this may not lead to any drastic increase in its urea output. The company will increase its urea producing capacity by 10 per cent from the current 1.9 mt a year if more gas is available.
A senior official from the Fertilizer Association of India (FAI) confirmed that the only benefit to these companies would be the option to use clean fuel.
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“The real benefit would be to the national exchequer in the form of savings to the tune of Rs 3,000 crore on fertiliser subsidy,” the FAI official said. At present, the fertiliser industry operates on around 30 mscmd supply, compared with the requirement of around 44 mscmd.
At present, naphtha is trading at $12 per million British thermal units (mBtu), whereas liquefied natural gas (LNG) is trading at $6 per mBtu in the spot market.
The fertiliser companies will, however, source the gas from RIL at $4.2 per mBtu. The fertiliser companies signed a gas sale and purchase agreement with RIL on March 27.
The companies which will receive the first tranche of 14 mscmd gas include Nagarjuna Fertilizers & Chemical, Rashtriya Chemicals & Fertilizer, Iffco, Kribhco, GNFC, Gujarat State Fertilizers & Chemicals, Tata Chemicals, National Fertilizer, Chambal Fertilizer & Chemicals, Shyam Fertilizers, IndoGulf Fertilizer and Shriram Fertilizer & Chemicals.
Iffco will receive around 3.5 mscmd from the KG basin for its five urea units. “With the additional gas, we will be able to replace our naphtha-based plants. It will enhance our production by 5 per cent,” said Managing Director US Awasthi. He added that the gas would help produce an additional 1-1.5 mt of urea in the country.
However, among all the companies that would receive gas, analysts believe Tata Chemicals would benefit the most, as its urea production could go up due to debottlenecking of its Babrala plant in Uttar Pradesh.
The company has spent around Rs 210 crore towards debottle-necking of the plant, increasing its capacity from 0.86 mt to 1.15 mt.
“When the second tranche of gas is committed to these fertiliser companies, the benefits would be visible in their bottomlines,” said a senior analyst from a broking house in Mumbai.
RIL began gas production from its KG- D6 block last week.