Essar switch to coal from R-LNG worries GSPC

Vol 16, PW 24 (27 Jun 13) Midstream & Downstream

GSPC is worried by a growing trend of gas-fired power stations switching to coal to avoid expensive R-LNG.

Take Essar which sources R-LNG from GSPC at prices ranging from $12 to $18/mmbtu. Essar on June 24 announced its decision to stop taking R-LNG from GSPC three years from now.

Why Because Essar is converting both its 515-MW gas-fired Hazira power station and 500-MW gas-fired Bhander station, also at Hazira, to coal. “We have allocated $200m to convert gas-based boilers to coal-fired,” says Essar.

“Both plants will be fully converted by 2016.” Generating power from coal is far cheaper than R-LNG.

Essar estimates the cost of generating a unit of electricity using R-LNG at Rs9.42 ($0.15) against Rs3.26/unit ($0.05) using scarce domestic gas. Coal is even cheaper.

GSPC’s three largest customers, accounting for more than 50% of its R-LNG off-take, are power producers: Essar, NTPC and China Light and Power. Last year GSPC earned a staggering Rs8204.42cr ($1.37bn) from R-LNG sales to power stations.

“But Essar is switching to coal," we hear. "Others may follow.

" Take China Light and Power's 655-MW gas-fired Paguthan station in south Gujarat where electricity production is erratic. Electricity produced at Paguthan costs Rs2.33/unit ($0.03) using domestic gas but costs Rs8.02/unit ($0.13) using R-LNG.

NTPC too will be tempted to switch. Its 187-MW Kawas station produces electricity at Rs2.72/unit ($0.04) using domestic gas but Rs10.92/unit ($0.18) using R-LNG.

Note: Gas-fired power stations will be even more tempted to switch to coal following a directive by finance minister P. Chidambaram on June 22 allowing power companies to pass on to consumers the additional costs of imported coal.

Chidambaram's decision still awaits regulatory approval from the Central Electricity Regulatory Commission. Power companies welcome the move, even though using imported coal will raise the electricity price by Rs0.20 to Rs0.25/unit.

In January, China Light and Power CEO Andrew Brandler wrote to Prime Minister Manmohan Singh complaining about erratic gas supplies to Paguthan. Brandler threatened that his company would quit India if supply disruptions didn't stop.