Why NTPC is happy to pay $6.5 naphtha for Kawas

Vol 7, PW 6 (04 Jun 03) Midstream & Downstream

WHY IS NTPC stubbornly asking for a 'fixed price' of $3 for LNG when it is already paying between $6-8 for naphtha at several of its gas-fired power plants on the HBJ Take its 645-MW power plant at Kawas in Gujarat, one of two facilities identified in the NTPC tender (see below).

One potential supplier tells us Kawas is fired entirely with naphtha and today uses 400,000 tonnes a year of "LNG equivalent." An elementary calculation using our PRICEWATCH numbers of ex-IOC naphtha reveals that at $26 oil NTPC is paying $6.5 per mmbtu for naphthaat Kawas - more than double it's prepared to pay for LNG. We put the question to a power expert.

Why is NTPC happy to pay $6.5 per mmbtu for naphtha but only $3 for LNG "Often power generators use natural gas to the extent possible based on limited availability," he responds. "Natural gas isused for base load operations to the maximum extent possible but is wholly dependent on supply.

NTPC offsets the balance with naphtha, which is more expensive. The normal prevailing price of naphtha may range from $ 6-7 per mmbtu.

This is high compared to the market price of LNG or natural gas which ranges around $3.5per mmbtu." Why is NTPC so insistent on a gas price of not more than $3 "In India natural gas pricing has a floor and ceiling price which prevents the 'real gas price' reaching the marketplace. The price of natural gas is based on 80% parity with a basket offuel oil prices.

Indian authorities have proposed 100% parity but this has not happened." Why is NTPC's tender so important "For the power sector it is critical to see the outcome of NTPC's tender because, if successful, it will set the stage for a LNG or natural gas price benchmark in the market place."