GAIL (India) Ltd has struck a long-term natural gas supply deal with state-owned National Fertilisers Ltd and Gujarat Narmada Valley Fertiliser Company Ltd, which have decided to convert their manufacturing plants from naphtha to gas, a more efficient feedstock.
Besides supplying gas, GAIL will also build gas pipelines connecting the plants and the gas transporter’s grid. The company will execute the pipeline projects and the cost would be built into the price of natural gas supplied to the companies, sources familiar with the development told FE. Finer details of the deal and gas prices would be decided between GAIL and the companies taking into account the prospects of business.
GAIL has the liberty to sign gas supply contracts with individual consumers for up to 50,000 standard cubic metres a day without the need for approval from the group of ministers on gas pricing and utilisation policy.
NFL is converting its plants in Nangal (Punjab), Panipat (Haryana) and Bathinda (Punjab) with a cumulative capacity of 15 lakh metric tonne of urea a year, from furnace oil and low sulphur heavy stock (LSHS), to natural gas. GNVFC is converting its one plant in Gujarat to gas.
Public sector fertiliser makers are now rushing to convert their urea production units to the cleaner fuel as the government is in the process of reforming its subsidy regime for fertilizers. The government has already freed up the retail price of phosphorous and potash fertilisers and intends to do so in the case of urea eventually.
Once that is done, plants running on natural gas will have a huge cost advantage and will be able to undercut those working on naphtha, which could be disastrous for their survival. The government thinks that it should give enough time to fertilizer producers to get converted to gas before it de-regulates urea’s retail price.
The government is likely to allocate about 17.5 million metric standard cubic metres a day (mmscmd) additional natural gas to fertiliser producers over the next few years as gas availability improves significantly. Now, about 35% of the country’s 150 mmscmd of gas output goes to the fertiliser sector. India’s gas output is expected to go up by another 50 mmscmd over the next few years.
