IFFCO suffering from lack of gas supplies to factories

Vol 9, PW 18 (15 Dec 05) Midstream & Downstream

Fertiliser cooperative IFFCO is pessimistic about securing an extra 800, 000cm/d gas by mid-2007 to expand capacity at its urea plants at Aonla and Phulpur in Uttar Pradesh.

If we dont get the extra gas then we will use naphtha, IFFCO tells us. This will raise the cost of production.

IFFCO produces 1.728m tonnes of urea a year at Aonla but wants to increase production by another 170,000 tonnes by the middle of 2007; at Phulpur it produces 1.41m t/y but wants to increase production by another 150,000 tonnes, also by mid-2007. Like other fertiliser companies, IFFCO is struggling to meet the shortfall in gas supplies, particularly at its biggest plant Aonla.

GAIL is contracted to supply 3.5m cm/d to Aonla at subsidised APM prices but depleting supplies from ONGC means GAIL can only supply 1.5m cm/d less than half. To make up the shortfall, IFFCO is buying an additional 600,000 cm/d joint venture gas from GAIL at APM rates and has contracted to buy an additional 800,000 cm/d regassified LNG, also from GAIL, at market rates.

Still, this isnt enough to fill the gap. We still face a shortage of 600,000 cm/d, says IFFCO.

We are substituting it with naphtha. IFFCO is talking to Shell, Gujarat State Petroleum and international players for additional supplies but is unsure about the price band in which to negotiate.

We wrote to the fertiliser ministry telling them we are talking to some companies, adds IFFCO. We asked them for guidance on the price but they have not responded.

Whether it uses naphtha or gas, IFFCO is clear the cost of future urea production will rise sharply. Our production cost will go up after 2009 when the price of R-LNG (from Dahej) is reviewed, says IFFCO.

Consumers will either have to pay higher prices or the government must pay higher subsidies to maintain prices at current levels. Feedstock accounts for 60% of the urea production cost.

Urea made using gas costs Rs7000 per tonne but doubles to Rs14, 000 per tonne when made using naphtha.