Private players likely to lose KG gas to NTPC

NTPC’s willingness to buy natural gas for its Kawas and Gandhar expansion power projects from Reliance Industries (RIL) at the price fixed by the government could enable the public sector power utility to steal a march over the private sector players competing for gas for their new projects.

“NTPC’s softening of stand on the price of gas from Reliance’s D6 field in the Krishna Godavari basin has now opened the way for an amicable settlement of the gas supply dispute pending in the Bombay High Court,” said a government official in the know of the development. “If this happens, a large portion of incremental gas from D6 will have to go on priority basis to NTPC projects, leaving close to 10 new power projects in the lurch,” the official added.

Power ministry has sought gas allocation on priority basis from the empowered group on ministers (eGoM) for companies, including Reliance Power, Torrent, Lanco, GMR and GSPC, who have committed to complete their projects by the end of the 11th Plan.

“NTPC is better placed to execute new gas-based projects as most of them are close to their running power plants. Release of gas linkage could really put these projects on the fast track unlike several private sector projects,” said an analyst dealing with the power sector.

NTPC is engaged in court battle with RIL. The Bombay High Court is to decide whether RIL is contractually bound to supply 12 million standard cubic metres a day (mscmd) of gas to these two Gujarat projects (1,300 mw each) for 17 years at $2.34 per mmBtu as claimed by NTPC.

With NTPC agreeing to a higher price and the government expected to give priority to the public sector utility for gas supply, there may not be much left from the KG basin for other players.

An eGoM led by Pranab Mukherjee sets the price of gas as well as rations it among user industries. The eGoM, in its meeting in July, did not allocate gas to new power plants and decided to ask fertiliser and power ministries to prepare a new list of projects that would require gas on an urgent basis.

“The prioritisation is being done due to scaled down projection of gas flows from the KG basin,” a petroleum ministry official said.
Currently, the D6 field produces 60 mscmd gas while the government has already made firm allocation of 63.715 mscmd. The output is expected to inch up to 80 mscmd but if NTPC walks away with the lion’s share of 12 mscmd from the incremental output, the others may have to either wait longer or make do with whatever's left for them.

The power sector gets 31.1 mscmd gas, fertiliser sector 15.5 mscmd and the rest goes to sectors like petrochemicals and city gas distribution. NTPC said its willingness to pay more than $2.34 per mmBtu in order to avoid delays in gas allocation will not dilute its case in the Bombay High Court.

But when the sovereign government fixes a price as per law keeping in mind the interest of the public sector entity, which in turn accepts it, then continuing with the litigation becomes irrelevant. While fixing the price, the group of ministers balances two considerations—the price should be able to attract investors into exploration and production of natural gas and it should be viable for the user industries. The price now applicable for the field is $4.2 per mmbtu at crude price greater or equal to $60 a barrel.

Although natural gas has its own cost dynamics, its price is linked to crude at the moment.

“The delay in finalising gas allocation for new power projects may push all these projects to 12th Plan. If this happens, government will otherwise also have to rework the priority allocation to power projects,” said an official in the power ministry.

The private sector power utilities awaiting gas supply for their new projects include Reliance Power’s 2,400 mw Samalkot project, GSPC’s 700 mw Pipavav power project, Gujarat State Energy Generation’s 350 mw project at Hazira, Pragati Power Corporation’s 1,000 mw Bawana power project, Lanco’s 740 mw Kondapalli Phase III, GMR’s Vemagiri expansion project, Uttarakhand’s Kashipur project, Torrent Power’s 1,200 mw DGEN mega power project, 100 mw project of Pandurang Energy Systems and 348 mw project of RKV Energy.

Together, these projects need about 30 mmscmd of gas to run plants at 70-75% of capacity. Government has projected that gas availability will increase from present 142 mscmd to 152 mscmd by 2011-12 and further to 186 mmscmd.

  Similar Posts

Share it