Spot R-LNG always too expensive for Mahagenco

Vol 11, PW 6 (26 Jul 07) Midstream & Downstream

Shell might be ready to take Maharashtra by storm, but some still find the cost of spot R-LNG too high.

Take Mahagenco (Maharashtra State Power Generation Company), the electricity-generating arm of state-owned Maharashtra State Electricity Board that operates an 840-MW gas turbine power plant at Uran, which routinely generates well below capacity at around 300-MW for want of adequate gas supplies. Mahagenco takes a cautious view of the newly laid Dahej to Uran and Dabhol gas pipeline, which links R-LNG supplies from Gujarat to the demand-hungry industrial heartland of Maharashtra.

“We are waiting and watching for now,â€‌ a senior Mahagenco official tells PETROWATCH. “But we cannot afford to purchase LNG at spot rates of $12 per mmbtu.

The (state) regulator will not allow us to sell expensive electricity (produced from R-LNG) under the â€کMerit Order Despatch’ system.â€‌ Under the â€کMerit Order Despatch’ system, the lowest cost power gets first priority.

Mahagenco argues that to buy spot LNG at such high rates it needs the active support of the state government of Maharashtra. “It is a different thing for NTPC to buy spot LNG at such prices,â€‌ adds Mahagenco.

“The central regulator is more liberal but our (state) regulator is very conservative.â€‌ Mahagenco admits it faces a dilemma: on one hand it is tempted to contract long-term R-LNG; on the other, it realises that cheaper domestic natural gas might soon flood the market, forcing prices down.

“If we contract long term LNG now and if six or seven years down the line ample (and cheaper) domestic gas becomes available, what do we doâ€‌ asks Mahagenco. “How will we explainâ€‌ Mahagenco is in the market to contract an additional 6m cm/d.

Of this 6m cm/d it needs 5m cm/d for its 1040-MW Uran Gas Turbine Project Expansion and 1m cm/d to meet the regular shortfalls at its 840-MW power station. “For now we have no plans to float tenders,â€‌ says Mahagenco.

“We want to wait and see how the gas supply situation develops; what kind of new sources are on the horizon and the prices being asked.â€‌