Power from LNG at $20 a barrel will cost $2.55/kwH

Vol 6, PW 21 (18 Dec 02) People & Policy

CHEAPER LNG FOR customers is clearly the oil ministry's top priority, particularly for the price-sensitive power and fertiliser sectors.

Together they account for 76% of gas consumption in India. "The cost of power (with LNG linked to $20 per barrel crude oil) will be around Rs2.55 per kwH," we learn.

"Out of this Rs1.10 per kwH will be the fixed cost. This compares well with existing power plants." In the fertiliser sector, if naphtha is replaced by LNG, "we could save more than Rs1, 000cr every year", according to one source.

The oil ministry is convinced cheap LNG will find a ready market in India and that gas demand from the power and fertiliser sectors will surge ahead. Figures from the power ministry confirm demand will more than double from the present supply of 25m cm/d to 52m cm/d by 2007.

Similar figures from the fertiliser sector reveal that demand will rise from the present supply of 24.4m cm/d to 43.6m cm/d in the same period. Corroboration of the widening demand-supply gap is found in Gas Linkage Committee "allocations" of 119m cm/d against actual supply of just 65cm/d! Argues the ministry, there's a huge demand for gas across India! More so given declining production from the Mumbai High and despite Reliance's discovery in the Krishna Godavari basin.

With its new LNG policy, Shastri Bhawan has belatedly recognised that LNG is the only way to bridge the growing gap. In the past, price was the main obstacle to making LNG consumer friendly: regassified LNG is expensive because of the capital-intensive nature of the LNG chain.

Yet if the Integrated LNG Policy becomes law, and taxes on LNG are slashed, its price will become more attractive.