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Fertiliser units hit by gas shortage

Harish Damodaran

NEW DELHI, Aug. 9

WITH claimants to gas as the preferred energy source increasing by the day -- buses, autorickshaws and taxis in Delhi being the latest addition following the Supreme Court's directive -- gas-based fertiliser plants are finding it more and more difficult to access their basic feedstock requirement.

Currently, the fertiliser industry consumes roughly 38 per cent of the estimated domestic natural gas production of 65 million standard cubic metre per day (MMSCMD), with power (40 per cent), sponge iron (five per cent), others (10 per cent, including pe trochemicals and domestic LPG) and internal consumption by Oil and Natural Gas Corporation (ONGC), Oil India Ltd (OIL) and Gas Authority of India Ltd (GAIL - seven per cent) accounting for the rest.

According to the Department of Fertilisers' assessment, the actual supply of gas to fertiliser units during 2000-01 amounted to 24.54 MMSCMD, which was 18 per cent below the 29.46 MMSCMD that was contracted as per their individual gas supply agreements e ntered into with the country's primary distributor namely, GAIL.

The significant shortfall in gas supply being experienced today is diametrically opposite to the situation in the 1980s, when the availability of associated and free gas, particularly from the Bombay High and South Bassein fields, prompted the setting up of a number of gas-based ammonia-urea plants.

Thus, while till the mid-80s, there were only a few gas-based urea units such as Rashtriya Chemicals and Fertilisers' (RCF) Trombay 1, Hindustan Fertiliser Corporation's (HFC) Namrup and Iffco's Kalol plants, the period since then has seen a host of plan ts being commissioned, starting with RCF's Thal (1985), Kribhco's Hazira (1986), National Fertilisers Ltd's Vijaipur (1988), Iffco's Aonla (1988), Indo-Gulf's Jagdishpur (1988), Nagarjuna's Kakinada (1992), Chambal Fertiliser's Gadepan (1993), Tata Chemi cals' Babrala (1994) and Oswal Chemicals' Shahjahanpur (1995).

But from the mid-1990s, the euphoria with regard to abundant domestic gas availability has subsided, with the result that no new gas-based fertiliser plant has come up after 1995. The few `brownfield' expansion projects of existing gas-based urea units t hat have been taken up -- including NFL's Vijaipur Expansion (1997), IFFCO's Kalol Expansion (1997), Nagarjuna's Kakinada Phase II (1998) and Chambal's Gadepan Expansion (1999) -- are all based on plants running on naphtha, which have the flexibility of switching over to gas ``as and when it becomes available''.

The prospects for such switchover, however, seems remote as of now, considering that the supply of gas is currently inadequate to meet the requirements of even existing plants. While the country's total registered demand of gas in 2000-01 from all sector s was estimated at around 110 MMSCMD, supply stood at a mere 65 MMSCMD.

According to the Petroleum Ministry's Hydrocarbon Vision 2025, indigenous gas demand is projected to reach 313 MMSCMD by 2011-12. Even after discounting for likely exaggeration in this demand-scenario, the fact still remains that there would be little ga s available to meet the requirements of even existing fertiliser units.

This, in turn, would also have implications on the Centre's fertiliser subsidy bill. The weighted average retention price (i.e. cost of production plus ``reasonable'' return on net worth) for gas-based urea units, as on March 2001, amounted to only Rs 6, 401.74 per tonne, as against Rs 9,425.14 per tonne for fuel oil/low-sulphur high-speed (LSHS) based units and Rs 11,722.02 per tonne for naphtha-based units.

As a result, gas-based urea plants account for less than 45 per cent of the Centre's urea subsidy, even while contributing to nearly 60 per cent of the country total urea production.

While the Government has touted import of liquefied natural gas (LNG) as an option to cover the unmet gas requirement of fertiliser plants, the industry, however, claims that this would not be all that economical.

Currently, urea units at landfall point (near Bombay High) obtain gas at a cost of around $1.7 per British Thermal Unit (btu), which rises to about $2.5 per btu along the Hazira-Bijaipur-Jagdishpur (HBJ) pipeline.

Compared to this, the current cost projections for LNG work out to $4-4.5 per btu at landfall point and $6 per btu for the northern/central hinterland (after adding cost of transport). This is only marginally below the current naphtha price of around $7 per btu, while being higher than the corresponding cost of $5 per btu for fuel oil.