India's GAIL to Double Capacity at Pata Petrochemical Complex

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's flagship natural gas company GAIL (India) Limited (BSE:532155) (New Delhi) has received approval from its board of directors to set up a 400,000-ton-per-year petrochemical complex at Pata, which is in the Auraiya district of Uttar Pradesh. The complex will include a 450,000-ton-per-year gas cracker unit; a 20,000-ton-per-year butene-1 unit; a 400,000-ton-per-year linear low-density polyethylene (LLDPE)/high-density polyethylene (HDPE) swing unit; a 20 million-standard-cubic-meter-per-day gas-sweetening unit; and a 19.5 million-standard-cubic-meter-per-day C2+Recovery unit.

The complex will require an investment of almost $1.8 billion, which will be raised through a debt-equity ratio of 70:30. GAIL's equity commitment to the project is about $540 million, and it has an external commercial borrowing plan of $150 million by December 2010. Further, HDFC Bank Limited (NYSE:HDB) (Mumbai) has sanctioned a $272 million loan to the company.

GAIL already operates a gas cracker and a 410,000-ton-per-year HDPE/LLDPE unit at Pata, so the new project would be akin to a brownfield expansion project. The new gas cracker and polymer units would be built at the same petrochemical complex, making operations easier. The remaining four units and their associated facilities would be set at Vijaipur in Madhya Pradesh. GAIL spent a long time deciding on the distribution of the new units between Pata and Vijaipur. The primary issue was finding an efficient and cost-effective mode of transportation for the C2+ extracts from Vijaipur to Pata. Three transportation options have been tabled, and the company soon will make a decision about the best one.

The new petrochemical complex would require about 2.5 million standard cubic meters per day of gas. The government has allocated 2.594 million standard cubic meters per day from the Krishna-Godavari (K-G) D-6 block to GAIL, and the company will utilize 1 million standard cubic meters per day of this amount at Pata. From 2012-13, GAIL will source 1.1 million standard cubic meters per day of gas from the Panna/Mukta and Tapti gas fields. This gas is now allocated to the Gujarat State Petroleum Corporation (GSPC) (Gandhinagar, Gujarat) until GSPC's own gas production from the K-G Basin begins in 2012-13. The remaining 700,000 standard cubic meters per day of gas will be composed of regasified liquefied natural gas.

Engineering consultancy firm Engineers India Limited (BSE:532178) (EIL) (New Delhi) prepared the Detailed Feasibility Report for the project in March this year and the project proposal was presented to the Project Appraisal Committee in July. EIL subsequently has been appointed as the engineering, procurement, construction and management consultant for the Pata project on a nomination basis.

Based on its past experience, GAIL is confident that the new petrochemical complex will be ready for operations within 42 months. EIL, however, has set a total project timeline of 50 months that begins from the date it was appointed as the EPCM consultant. EIL expects mechanical completion of the project in 36 months.

The new petrochemical complex is expected to help GAIL retain and improve its share in the polymer market. The petrochemical business plays a major role in GAIL's balance sheet and has continuously contributed significantly to its overall profits. GAIL's current market share in the LDPE and HDPE sector is 27%, while Reliance Industries Limited (BSE:500325) (RIL) (Mumbai) has a share of 56.8% (862,000 tons per year) and Haldia Petrochemicals Limited (Kolkata, West Bengal) has a 16.2% (246,000 tons per year) share in the polymer market. GAIL soon will face competition from other public sector units, such as Indian Oil Corporation Limited (BSE:530965) (Mumbai), which is adding a 1 million-ton-per-year polymer unit at its Panipat Refinery in Haryana, and ONGC Petro-additions Limited (OPaL) (Dahej, Gujarat), which is setting up a 1.1 million tons per year petrochemical complex at Dahej. OPaL is a special-purpose vehicle set up by the Oil and Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi) to develop the Dahej project.

GAIL's Pata petrochemical complex has been operating since 1999, and it began operations with a capacity of 260,000 tons per year. Capacity was augmented in phases to the existing 410,000 tons per year by 2007. A sixth furnace is being installed in the gas-cracking unit; when it commences operations, capacity is expected to go up to 450,000 tons per year. The Pata gas cracker sources its gas from the 3,474 kilometers long Hazira-Vijaipur-Jagdishpur gas pipeline. The pipeline was laid by GAIL and runs through Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh, Haryana and Delhi. More than 400 companies draw gas from the pipeline as it passes through the seven states.

The decision to set up the new petrochemical complex at Pata has pushed back plans for the GAIL-RIL overseas mega-petrochemical complex. Commenting on the decision, Chairman and Managing Director B.C. Tripathi of GAIL said: "We had plans and had even short-listed a few countries. But looking at the global situation, we have decided not go ahead with the project for the time being. The project has been put on the back burner."

In December 2007, GAIL and RIL had signed a memorandum of understanding to jointly set up a mega-petrochemical complex. They had set a three-year timeline in which to select a location and commence work on the project. The partnership initially identified 10 countries, but finally narrowed the list to Algeria, Iran, Nigeria, Qatar and Russia. However, the global economic downturn saw a sharp decline in the demand for petrochemicals, and the partnership decided to slow the project plans. With the new GAIL development, however, the overseas project has been pushed back indefinitely.

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