Propane-linked gas contracts from Gujarat Gas
Taking gas at a price linked to cheaper propane is a prospect too good to pass up.
That's why BSE-listed gas retailer Gujarat Gas (GGL) has received 150 EoIs from ceramics factories in Morbi and Surendranagar in Western Gujarat interested in its one-year propane-linked gas contracts. After inviting offers on March 20 (2024), Gujarat Gas received the EoIs by April 20 (2024) and is going through them now.
On offer is piped gas expected to flow from June 1 (2024), but only after the execution of a definitive agreement. Gujarat Gas expects to increase piped gas supplies to Morbi and Surendranagar from nearly 4m cm/d to 7m cm/d over two to three years.
Current gas demand in the ceramics clusters stands at 7.6m cm/d. "Propane accounts for 2.1m cm/d of that," says a Gujarat Gas source.
"But the rest is piped gas." He adds the company is pleased with the response.
"This process is only for current customers," he adds. "We want to win Morbi factories that have switched to propane."
Gujarat Gas describes its offer as an "industry first alternative fuel price linked gas pricing" for the benefit of the Morbi cluster. "Our piped gas price shall almost be at par with propane, and customers can then take advantage of our flexible switching options," we hear.
Gujarat Gas has linked the ceiling price of a cubic metre of gas to the Saudi Aramco propane price, 9.25% freight, 2.75% customs duty, local transportation at $15.66/tonne and 6% Value Added Tax (VAT). In the ceramics industry, fuel costs account for over 30% of the product cost.
"This (EoI) process will bring in much-needed certainty in fuel pricing," claims Gujarat Gas, which currently supplies piped gas to ceramic factories at Rs42 ($0.50)/cubic metre. Saudi Aramco, meanwhile, has cut the June 2024 propane price to $580/tonne.
Gujarat Gas thinks the proposed pricing mechanism is mutually beneficial. "Ceramics factories will directly benefit as the fuel cost will reduce significantly," we hear.