Gas pool likely to fuel power plants ready for generation

The government proposes to offer gas for all power projects to be completed in the current Five Year Plan by creating a pool of domestic gas and imported re-gassified liquified natural gas (RLNG). The new mechanism will not only ensure that gas is available to meet around 80% of the requirement of these power plants, but also provide fuel to them at competitive rates as pooling will help moderate RLNG price.

While average domestic gas price is around $4.2 per million British Thermal unit (mmBtu), RLNG costs over $15 per mmBtu.

There are 10 power projects with a total capacity of 7,919 MW scheduled for commissioning by March-end 2012, but availability of gas to them is uncertain as production from country's biggest reserve, Reliance Industries' D6 block in Krishna Godavari basin has fallen sharply.

The government’s move will benefit Reliance Power’s 2,400 MW Samalkot project, RVK Energy’s 436 MW gas project, Panduranga Energy Systems’ 100 MW project, Torrent Power’s 1200 MW DGEN project and GSPC’s 700 MW Pipavav Power, among others.

On Friday, Prime Minister Manmohan Singh expressed concern over the sluggish pace of commissioning power projects at a review meeting of various ministries, directing that fuel-related issues be resolved at the earliest. At present, domestic gas is allocated only to existing power projects stranded due to gas shortage and a small quantity is given to new projects commissioned in 2009-10.

Projects under implementation and development have not been allocated fuel.

According to the proposal being considered by the government, pooling may be done by combining gas and RLNG in a 3:1 ratio to meet 80% of the requirement of power plants. Pooling will bring down the cost of fuel to the power plants to $7-8 per mmBtu.

“This is a welcome move as it will allow us to get fuel at competitive rates and help us keep power tariff low. It will also end uncertainty and protect thousands of crores of project investments,” said an official of a leading private sector power company, asking not to be named.

For the proposed gas pool, government is considering to tap gas produced by state-owned ONGC and Oil India from the nominated fields. A portion of gas going from these fields to non-priority sectors such as petrochemicals and steel will be diverted for use by priority sectors such as power and fertiliser.

Of the 55 million metric standard cubic metres a day (mmscmd) gas produced by the two state-run companies from nominated blocks, the government will be able to free up about 10-15 mmscmd gas for use by new power plants. This will enable these power projects to get gas to run plants at close to 60% of their rated capacity. The balance will come from imported LNG.

The oil ministry has already directed RIL to meet the natural gas requirement of priority sectors first before giving the clean fuel to others from its KG D6 block. KG production has dipped below 45 mmscmd against an expected production of 80 mmscmd, leading to less-than agreed gas availability for all existing gas projects. Now, the power sector gets about 25 mmscmd and the fertiliser sector gets about 15 mmscmd of gas from nominated fields at an administered price of $4.2 million metric British thermal units. What remains of the 55 mmscmd APM gas goes mainly to consumers having allocations less than 0.05 mmscmd. A few buyers covered under certain court orders also get APM gas.

Gas allocation for these new projects could give a fresh lease of life for the capacity addition programme of the government which is is already far short of the 11th Plan target. In the current Plan, government planned to add 62,000 MW of new generation capacity but the Plan is expected to end with just about 45,000 MW. Gas for new projects could add another 8,000 MW of generation capacity.

Gujarat State Energy Generation’s 350 MW project at Hazira, Pragati Power Corporation’s 1,000 MW Bawana power project, Lanco’s 740 MW Kondapalli Phase III, GMR’s Vemagiri expansion project, Uttarakhand’s Kashipur project are also expected to benefit from gas pooling.

In May, the petroleum ministry passed an order order asking RIL to fully meet the contracted gas supply to priority sectors like fertilizer, LPG, power and city gas distribution in spite of the fall in gas production from the D6 field. Considering the shortfall in output, the ministry allowed RIL to make pro rata cuts in supply only in the case of remaining sectors like steel and petrochemical producers and refineries.