Domestic power stations prefer naphtha to R-LNG

Vol 12, PW 12 (30 Oct 08) Midstream & Downstream

Naphtha is no longer taboo for Indian power producers who are flocking to embrace this fuel with a passion till now reserved for regassified spot LNG.

For the past three years, naphtha – produced by domestic refiners – has been out of fashion with domestic power producers because it was more expensive than (imported) spot R-LNG. But thanks to the global economic slowdown, petrochemical companies have cut demand for naphtha forcing prices down by as much as 50% in the past one month, making the fuel more attractive than R-LNG.

“Naphtha prices have become de-linked from crude oil,â€‌ a Mangalore Refinery source tells us. Naphtha typically sells at seven times the price of crude.

At current prices of around $65/barrel, naphtha should be $11/mmbtu (FOB) but is available at $8/mmbtu FOB. With the fall in crude oil prices, spot LNG prices have not declined as sharply as naphtha and power stations in Gujarat are leading the way by replacing spot LNG with naphtha.

“We have a certain contracted quantity of (subsidised) domestic gas,â€‌ an Essar Power source tells us. “But there’s still a shortfall which used to be met earlier through spot R-LNG and is now being met through naphtha.

â€‌ Naphtha is back in vogue with state-owned NTPC generating a total 4000-MW from seven power stations using both gas and liquid fuels. “We take whichever fuel is cheaper,â€‌ says NTPC.

“Our first priority is (subsidised) domestic natural gas, second is naphtha and third is spot R-LNG.â€‌ He adds: “Naphtha used to be our last priority but we used to always keep some stocks for use when even R-LNG would not be available.

â€‌ Now, he continues, “we’ll be buying naphtha more aggressively because it is cheaper than R-LNG by about two dollars.â€‌ In the coming days, some expect naphtha prices to drop even further.

“Naphtha sells at Rs36,260/tonne ($725), compared to Rs39,000t/tonne ($780) for spot R-LNG,â€‌ reports BPCL. “It may crash below Rs30,000/tonne ($600) from November 1 when prices are revised for the next fortnight.