Gas use to pare fertiliser subsidy by Rs 1450cr

Savings of around Rs 1,450 crore per annum in terms of subsidy would be achieved if naphtha and fuel oil (FO) based urea plants switched over to natural gas (NG) and re-gassified liquid natural gas (R-LNG).

The savings would be available after the units recover their conversion cost by retaining the gains from switchover under the new pricing scheme which came into effect earlier this year.

The government had paid annual subsidy of around Rs 12,700 crore for fertilisers for the last few years, most of it to urea producers.

The central government was likely to save Rs 1,100 crore on account of feedstock conversion in naphtha based plants while conservation from FO based units would be Rs 350 crore, a study by ICRA stated.

At current prices, the use of LNG in place of naphtha in manufacture of urea would save over $ 2 per MMBtu (million British thermal unit). Each tonne of urea required 22 MMBtu. Savings would exceed $ 44 (around Rs 2,000) per tonne of urea as LNG and naphtha based plants consumed nearly equal amounts of feedstock. India's total urea capacity based on naphtha was over 5.55 million tonne a year.

The difference between LNG and FO in terms of prices was admittedly marginal. The big difference was on account of energy savings.

Savings of over 2 gigacals or 9 MMBtu per tonne of urea was possible is LNG was used. Units could save $36 or Rs 1,600 per tonne. India's total urea capacity based on FO exceeded 2.1 million tonne a year.

The conversion of feedstock would help LNG importers like Petronet LNG Ltd (PLL) and Shell, which was setting up a facility for LNG import at Hazira. The total demand for LNG from converted urea units would exceed 4 million tonne per annum.

The industry was yet to accept the present pricing structure for naphtha/FO based urea units. Fertiliser units using subsidised domestic natural gas had sought reduction of R-LNG prices recently.

The landfall price for LNG at Dahej terminal of PLL was $ 2.8 per MMBtu. It was being sold at $ 3.95-$ 4.95 per MMBtu depending on transportation cost and state levies. Domestic gas was sold at $ 2.55 per MMBtu.