Gas Linkages from Krishna-Godavari Basin to Feed Power Plants

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Empowered Group of Ministers (EGoM), led by India's External Affairs Minister, Pranab Mukherjee, recently approved a proposal to issue gas linkages to India's independent power producers. Following this move, Konaseema Gas Power Limited (Hyderabad, Andhra Pradesh), GMR Energy (Bangalore, Karnataka) and GVK Power and Infrastructure Limited (BSE:532708) (Secunderabad, Andhra Pradesh) have signed up for natural-gas linkages from the wells in the Krishna-Godavari (KG) basin in Andhra Pradesh.

The EGoM indicated that all gas-based power plants, which have a combined power generation capacity of about 1,800 megawatts (MW), would receive gas supplies from the KG basin by May of this year. The gas-based units already in operation in the country contribute about 1,365 MW of power. These units are owned by Vijjeswaram (Hyderabad, Andhra Pradesh), Spectrum Power Generation Limited (Hyderabad), Lanco Infratech Limited (BSE:532778) (Hyderabad) and GVK.

The increased gas supplies are expected to ramp up power production significantly. According to Subba Rao, Chief Financial Officer for the GMR Group, the company's 388-MW Vemagiri gas-based power plant, set up near Rajahmundry in Andhra Pradesh, was ready in September 2007 but could not begin production because of the shortage of gas. The plant began production in December 2008 using gas that was diverted from other plants. The plant is currently running at a capacity of 45%, but with the additional supply of gas from the KG basin, the company expects the power generation capacity to increase considerably from May.

GVK recently commissioned its 220-MW Jegurupadu Phase II power plant with gas from blocks in the KG basin operated by Reliance Industries Limited (BSE:500325) (Mumbai) and transported by GAIL (India) Limited (BSE:532155) (New Delhi). This was the first power project to be supplied with gas from the fields operated by Reliance in the KG basin.

Early last week, GVK also commissioned its 464-MW Gautami Power project in the East Godavari district of Andhra Pradesh. The project had been idled because of the shortage of gas. The 445-MW Konaseema plant similarly began power production late last month. Although all the projects are currently operating at half their capacities to avoid any initial problems, the capacities are expected to be ramped up as the gas supplies become steady. The 272-MW Vijjeswaram power plant will be connected to the KG basin during the second phase of the pipeline project.

The new gas linkages will help the existing gas-based power plants to operate at higher capacities and will also ensure that the 2,770-MW capacity of the nine projects in Andhra Pradesh function at full capacity once they are commissioned.

The GAIL pipeline grid will be used to transport gas from the KG basin. GAIL has already signed initial agreements with Reliance and Oil and Natural Gas Corporation Limited (BSE:500312) (New Delhi) to transport and market gas from the blocks being explored and developed by the two companies in the KG basin.

GAIL recently proposed building a 1,100-kilometer gas pipeline from the KG Basin to Madhya Pradesh and is awaiting approval from the government. The proposed pipeline would run from Vijayawada in Andhra Pradesh to Vijaipur in Madhya Pradesh. The existing Hazira-Vijaipur-Jagdishpur pipeline is also owned and operated by GAIL. With the completion of the new pipeline, Vijaipur would serve as a hub of the network. GAIL intends to increase its pipeline network to 12,000 kilometers by 2012 and transport 300 million standard cubic meters per day of gas. In 2007, GAIL obtained approval to lay five new pipelines with a total length of 3,300 kilometers.

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