Tata Power wants ONGC gas at $3-$3.2 per mmbtu

Vol 7, PW 9 (16 Jul 03) Midstream & Downstream

TATA POWER wants to sign a 15-year sales agreement with ONGC to fire its 1,350-MW power station at Trombay in Maharashtra with gas from the corporation's C22, C24 and C39 marginal fields offshore Mumbai.

Preliminary talks between the two companies began last March and today we learn both companies have exchanged term sheets outlining their respective conditions. Price discussions are expected to begin in another two or three months after both sides sign a 'Common Term Sheet'.

We learn Tata Power is telling ONGC it wants to buy 4m cm/d gas. We are looking at a price band of between $3 and $3.2 per mmbtu for ONGCs gas over 15 years, a TPC official tells PETROWATCH.

Also, Tata Power is making it clear that if it finds a cheaper supplier, ONGC will have to match the price. ONGC is not happy with this condition, but has little choice.

In this age of competition, we should be able to match the price," an ONGC source tells us. "But it all depends on the cost of production of these marginal fields.

If negotiations are successful, ONGC will develop C22, C24 and C39 for dedicated supply to Trombay. But the production profile for these three fields is just 2.5m cm/d for 10 years - only half Tata Power's requirement.

"We have informed Tata Power about the production profile from these fields," says an ONGC source. "They will have to look for alternatives once production starts depleting." Tata Power knows this and is ready to buy regassified LNG either from Petronet-LNG or Shell once supply starts tapering off from C22, C24 and C39.

Tata Power wants ONGC to index the price of its gas to coal, which is used as an alternative fuel at Trombay. ONGC is relaxed about this.

Linkage to an alternative fuel is not an issue. But, we are not too sure how to respond if the Tatas insist on coal.

We may insist on linking the price to the Japanese Crude Cocktail price. Whatever happens, production will be slow.

These fields will take at least three years to be developed," reveals ONGC. "They will have to wait till 2007.