The gas utilisation policy, which has been finalised by the petroleum ministry and is awaiting approval by the empowered group of ministers (eGoM), will become an important policy input for all producers of gas in India. Keeping in view the scarcity of natural gas, it is in the country?s interests that natural gas is utilised in the most optimal manner.
The model production-sharing contract (MPSC) for Nelp-VII provides guidelines for the utilisation of natural gas among different sectors. It has also been clearly stated in the MPSC that for the domestic sale obligation, a contractor will have the freedom to sell its entitlement of natural gas according to the government policy for utilisation of gas among different sectors. Therefore, the entire sale of gas by contractors will be governed by this important policy document.
Demand for natural gas in the country has been growing rapidly with supply not keeping pace. Production of natural gas from indigenous sources is around 88.63 mmscmd. In addition, imports of liquefied natural gas (LNG), including spot, is around 26.11 mmscmd. After internal use, shrinkage and technical flaring, the amount of natural gas available is around 102.68 mmscmd. Against this, the estimated demand for natural gas in 2007-08 was 179.17 mmscmd. After taking into account the significant discoveries made under Nelp, production of natural gas in India is set to increase in coming years.
In anticipation of the increased gas availability, projects with massive investments have come up in the core sectors. Currently, several core sector customers face a shortfall in gas and use expensive liquid fuels, resulting in pressure on the exchequer in the form of subsidies. It is, therefore, in the public interest that natural gas is provided to these sectors on a priority basis.
The guidelines laid down by the petroleum ministry also detail the order of priority. First priority will be given to existing plants to ensure utilisation of capacities already created and to obtain faster monetisation of natural gas. Secondly, wherever possible, liquid fuels in energy-intensive industries would be replaced by natural gas. Thirdly, existing plants should also meet the requirements of easing bottlenecks and expansion.
The order of priority proposed by the petroleum ministry is as follows:
Priority 1: Existing fertiliser (urea) plants would be accorded first priority. It has been established that natural gas is the ideal feedstock for production of urea. Currently, there are 22 fertiliser plants in the country that have the ability to use natural gas. The combined production capacity of these plants is 16.6 mmtpa. Due to a shortfall in gas availability, these plants use costlier alternate fuels like naphtha and fuel oil. Against a requirement of 39.4 mmscmd, the current supply to these plants is around 30.2 mmscmd, resulting in a shortfall of 9.2 mmscmd. The shortfall of these plants needs to be met on an emergent basis.
In addition to gas-based fertilisers plants, there are five naphtha and three fuel oil-based plants with a gas requirement of 6.8 mmscmd and 3 mmscmd, respectively. While there is no connectivity to these plants as of now, authorisations have been issued for new pipelines and connectivity can be expected by 2010-11. The demand for gas from these plants is expected in that timeframe. Further, there are seven closed fertiliser units, which can produce an additional 7 mmtpa of urea. The gas requirement of these plants is expected to be around 14 mmscmd.
Priority 2: LPG is a clean fuel used for cooking. Currently, there is a shortage of LPG for domestic use. About a quarter of our requirements are met by imports. This is expected to go up in the coming years. Therefore, the next priority is to be given to existing LPG extraction plants.
Priority 3: The next priority is to be accorded to existing gas-based power plants. The total power generation capacity in the country today is around 1.4 lakh mw, of which gas based generation capacity is 12,589 MW, accounting for 9% of total production. Over the years, several gas-based power plants have come up in the country. Some of these plants are either lying idle or are using expensive alternative fuels because of limited availability of natural gas. The petroleum ministry feels that these plants should be accorded priority to ensure utilisation of idle assets, cheaper incremental cost of power and the ability of gas-based units to handle peak loads.
Priority 4: Currently, piped natural gas is supplied to 7.9 lakh domestic households, 1,289 commercial customers and 74 industrial customers. There are also 409 CNG refilling stations set up in the country. It is proposed that all cities with a population of more than 25 lakh will have piped gas within three years. Further, cities with population of 10-25 lakh would be covered in a phased manner.
Priority 5: The total liquid fuel consumption by PSU refineries is estimated at 640 tmt per month. Most of the liquid fuel used in refineries is fuel oil or naphtha. Replacing all the liquid fuel with natural gas would save Rs 1,333 crore a month in these refineries alone. The demand from refineries is estimated to be around 24 mmscmd of natural gas, while the current supply is only 2.01 mmscmd.
Priority 6: It is proposed that existing industries, which use natural gas, have to be given importance over greenfield projects. An important industry is sponge iron. At present, sponge iron plants get only around half their requirement of natural gas. Similarly, ceramic plants use natural gas. Use of natural gas is energy efficient and environment friendly.
The policy further elaborates that once the gas demand from existing units has been satisfied, the gas should be utilised in the following order of priority for greenfield expansion: fertilisers plants, petrochemical plants, CGD, refineries and power plants.