Gas-fired power plants staring at a dark future

Falling KG-D6 output, costly imported LNG hem in power plants

India’s gas-based power stations are facing an uncertain future. Depleting output from Reliance Industries? KG-D6 block and non-availability of adequate infrastructure to handle liquefied natural gas (LNG) imports are set to trigger suspension of about 7,000 MW of generating capacity, further widening the large gap between power demand and supply.

As per a power ministry assessment, the sharp fall in output from KG-D6 block ? which produced over a quarter of India?s total gas output in 2010-11 ? will leave just 3 million metric standard cubic metres per day (mmscmd) of gas for the power sector by 2013-14. This is just a 10th of allotment from the block given to the power sector. With 3 mmscmd, only 625 MW of electricity can be generated, which is just 9% of the installed capacity of 6,790 MW meant to be run on KG-D6 gas.

Gas allocation for the 26 power plants relying on D6 has already reached a low of about 11 mmscmd against the original allocation of close to 32 mmscmd approved by an empowered group of ministers in 2009. Even at original allocation, power companies were using only 70-75% of their capacity as the clean fuel got divided among various priority sectors like fertilisers, city gas distribution and LPG extraction units.

?The government has to evolve a better power pricing policy and provide incentives to private players to build better infrastructure and pipeline networks. If domestic gas declines, these power plants which are already running at a third of their capacity will not work at all,? Ashok Khurana, director, Association of Power Producers, said.

According to KG-D6 projections, gas output will dip below 20 mmscmd by 2014 and the power sector will be left without gas. As the government is unlikely to cut allocations for fertiliser and LPG sectors given their high-priority status, the power sector will likely face the heat.

India has infrastructure to produce about 16,640 MW every year using natural gas, of which about 5% is powered by costly imported LNG. Most of these plants are already running below their rated capacity due to gas shortage. A further decline will impact almost all major power sector companies such as NTPC, Lanco, GMR, Torrent, Essar, Tata, Reliance and GVK. Many of these projects were stranded even before RIL?s KG-D6 started producing gas.

Power companies, meanwhile, find it difficult to switch to LNG on a massive scale without the consent of state electricity boards, the principal buyers. With SEBs already facing financial constraints, agreeing to a higher tariff is not easy for them.

?Most Andhra Pradesh power plants are not connected to the Kochi LNG terminal, making them dependent on domestic gas. Gail is trying to get the Dabhol terminal commissioned by the year-end,which will give some relief to consumers. But affordability is always a question considering the regulated price regime by different state governments,? RK Garg, finance of Petronet LNG said over telephone.

Several oil companies are building LNG terminals in India and import gas even at higher rates to meet the burgeoning demand. Indian Oil Corporation proposes to set up a 5 million tonne terminal at Ennore Port by 2015. Reliance Power in a joint venture with Shell is likely to come up with a terminal at Andhra Pradesh which is located in near proximity to KG D6 block. Petronet LNG is about to commission its Kochi terminal by the end of this year with a capacity of 5 mmtpa equivalent to 20 mmscmd of natural gas. It also plans to increase the capacity of its Dahej terminal by 5 mmtpa from the current 10 mmtpa.