Warns existing gas-based stations will be at a disadvantage.
NTPC Ltd, the country’s largest power generator that currently operates over 4,000 mega watt (Mw) of gas-based project, has rejected a proposal for pooling of gas prices for the power sector.
The state-run power generator has warned that such pricing will make the APM (administered price mechanism) gas dearer by at least 20 per cent and the power sector would have a serious adverse impact in terms of increase in the cost of generation.
APM gas, produced by state-run ONGC and Oil India Ltd from fields allotted to them under a nomination basis, constitutes about 30 per cent of 133 million standard cubic meters per day produced in the country.
NTPC said since the pooled prices were proposed to be uniform for all customers, the existing gas-based stations would be at a disadvantage in respect of price competitiveness for scheduling of power as compared to newer stations because of a higher designed heat rate of new gas-based stations.
The company, in its communication to the power ministry on June 15, had objected to the pooling of gas pricing that was recommended by energy consultant Mercados.
NTPC, which is currently drawing 2.51 million standard cubic meter per day (mmscmd) of gas from Reliance Industries’ Krishna-Godavari D6 (KG-D6) basin at around $7 million british thermal unit, has highlighted that the term and duration suggested in the study for pooling as 4-5 years would lead to uncertainty as no greenfield gas-based capacity can be set up which would require the stable pricing and supply of gas for 25 years.
An NTPC official told Business Standard: “With the continuous reduction in the supply of APM gas, the pooling of price with spot LNG (liquefied natural gas) will expose the power sector to highly volatile gas prices. The existing gas-based stations will be at a disadvantage vis-à-vis the new ones due to old technology and lower efficiency or higher heat rate. Further, there will be no incentive for the LNG importers or power producers to bring LNG at a competitive price as every purchase will become part of the pool.”
The official said NTPC had raised concern that price discovery mechanism in case of future gas fields under the New Exploration and Licensing Policy (NELP) through non-power and non-fertiliser sectors, who can afford to pay higher gas prices, would create a scenario where demand is high but availability is low, and would result in high prices of gas.
The official said power and fertiliser sectors, which constitute about 70 per cent of the gas, were proposed to be brought under power sector and fertiliser sector price pools, respectively. The balance 30 per cent sectors such as refineries, petrochemicals, steel and city gas distribution have got the appetite for paying higher gas prices. “Thus, the price discovery of future NELP gases through the balance 30 per cent sectors would lead to a significantly high gas price in a scenario where there is high demand for gas but availability is low. The high prices of future NELP gas would further increase the pool prices significantly,” he added.
According to NTPC, the cost of generation of existing gas based power stations would increase substantially as the pooled gas prices would be higher than the average gas prices under the existing contracts for these stations. Moreover, with the every new LNG contract getting pooled in future, the pooled price would further increase.
