Gas Supply Problems Idle 15,500 Megawatts of India's Power Generation Capacity

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--With as many as 37 gas-fired power stations inoperative due to a complete lack of fuel supplies, India's Oil Ministry has proposed abolishing the current priority rankings for sectors in the queue for gas supplies.

In the existing ranking regime, natural gas is first given to urea manufacturing fertilizer plants, then in order of priority to liquid petroleum gas (LPG) units, power plants, city gas, steel and refineries. In a note to an empowered group of ministers (EGoM), the Oil Ministry suggests replacing this system with one of two options for all core sectors: The first option would be to accord equal priority to all core sectors for fertilizers, LPG, power and city gas distribution; the second option would give fertilizer and power sectors equal priority status, then redistribute gas supplies among the various sector users pro-rated on previously signed gas supply agreements.

The priority system was introduced when production from Reliance Industries' (BSE:500325) (Mumbai, India) eastern offshore KG-D6 started to dry up in 2011. The oil-refining sector was the first to experience cuts in gas supplies, followed by the steel and city gas sectors. The current KG-D6 production of about 15.3 million standard cubic meters per day is just about enough to meet the full requirements of the fertilizer sector and some of the LPG plants, with no gas available for power plants.

In March this year, the critical shortage of gas forced the government to advise power plant developers not to plan for any gas-fired projects until 2015-16. But the government allowed for gas-fired projects that already had received official approval to be implemented. At that stage, nearly 9,500 megawatts (MW) of gas-fired projects were at various stages of implementation, and two plants with a total capacity of 983.5 MW had been commissioned but were awaiting gas allocations.

If the redistribution takes place under the first option, it would reduce supplies to the fertilizer sector by 9.44 million standard cubic meters per day and would result in increased urea imports of 4.73 million tons, leading to extra annual subsidies of more than $1 billion.

In this scenario, supplies to the power sector would increase by 10.07 million standard cubic meters per day and result in additional generation of 16 billion units of electrical power annually. The production costs of plants forced to use regasified LNG would go down by just less than $2 billion.

Under the second option, with equal priority for fertilizer and power production, gas supplies to urea plants would go down by 9.07 million standard cubic meters per day, forcing increased urea imports of 4.54 million tons and increased subsidies of about $976 million. Supplies for power plants would increase by 10.79 million standard cubic meters per day, with an additional output of 17 billion units, and production costs would be reduced by $2.1 billion annually.

India has a total 18,830 MW of gas-fired capacity, of which 15,529 MW are, or should be, fed with RIL gas. That 15,000-plus MW are now standing idle.

NTPC (New Delhi, India), the country's largest power producer, with a total gas-fired capacity of 3,955 MW, has 3,605 MW shut down. The capital city of Delhi has four gas-fired plants without fuel supplies.

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