NTPC to source gas at daily discovery price

The country's top power producer, NTPC Ltd, has decided to source gas for its requirements through a daily price discovery model.

The plan, which was approved by its board on May 31, has been taken keeping in mind the volatile crude price conditions in international markets. The company's original plan was to select a supplier for a nine-month period.

"The price discovery for 4 million standard cubic metre a day (mscmd) will be made on a daily basis. There will not be any long-term contract. This approach has been adopted due to the rising gas prices," a company source told Business Standard.

This is how it will work: every day a clutch of companies, including GAIL, Petronet LNG, Oil and Natural Gas Corporation, Gujarat State Petroleum Corporation Ltd and Shell, will compete for supplying 4 mscmd of gas at the lowest price.

These companies had qualified for NTPC's tender for gas supplies earlier this year. NTPC will give an estimate for the following day at midnight and invite quotes.

The company that quotes the lowest price will supply the gas. This arrangement will continue for six months after which it will be reviewed.

"As there is no 'take or pay' obligation, this will work out to our advantage. Even if there is no long-term gas supply contract, availability of gas will not be an issue," sources added.

The confidence about the low supply side risk stems from the fact that gas suppliers have bought huge quantities in the spot market and will need a buyer to offload.

NTPC has seven power generation plants fuelled by gas or liquid fuel with a commissioned capacity of 3,955 Mw. Its commissioned gas plants through joint venture have a capacity of 314 Mw.

The company has a gas demand of 17 mscmd, of which it is able to get supply of only 13 mscmd.