Is polluting furnace oil taking the sheen off natural gas!
CGD Companies lose 20% of industrial market in 2 years to cheaper FO
The City Gas Distribution (CGD) Companies in India have been hard hit as industrial users have opted for the cheaper but more polluting Furnace Oil (FO).
The CGD Companies have lost about 20% of the industrial segment business over the past two years to FO.Sales of seven (7) leading companies declined from 458 MMSCM in 2013-14 to 362.38 MMSCM, a decline of 20%.Apart from the loss to the companies, increased FO usage means increased pollution and damage to environment
Following the crash in crude oil prices, industrial/commercial consumers started to look for cheaper alternatives to natural gas,even though gas is cleaner than liquid fuels high in sulphur content. As a result, it is hurting the volume off-take of gas suppliers/ CGD companies and pushing up environmental costs for India. Every consumer wants cheaper fuel with the increasing preference for fuel oil among clients in ceramics, chemicals, pharmaceuticals, agro, engineering and other industries. Most CGD companies including Mahanagar Gas, Gujarat Gas, Adani Gas, Aavantika Gas, Maharashtra Natural Gas, Siti Energy, Central UP Gas and Indraprastha Gas are under pressure.
A crash in crude oil price since June 2014 has prompted factories to reduce using gas for their energy needs and switch to furnace oil, a low-quality refined product that is usually cheaper than crude oil but an environment rogue.Consumers of natural gas and RLNG have switched faster to dirty liquid fuel in industries and regions where environmental laws are not strictly implemented. The switch will apparently lead to more air pollution.
The switch to liquid petroleum fuelsis smooth as factories increasingly use equipment which runs on both gas and liquid fuel. Crude oil prices have more than halved in two years, and are currently trading between $45-50 a barrel. The sliding crude oil price has impacted fuel oil price too, resulting in a steep drop in furnace oil price. In the Pune area, the current price of furnace oil is 72% of the natural gas price to an industrial/commercial customer on an equivalent energy basis. Since April 2015 furnace oil price has dropped by 30% whereas the price of natural gas to industrial & commercial segments has declined by only 15%. The current trend is likely to continue for at least until the oil price begin to rise.
The fuel oil ( FO+LSHS) consumption in India has declined by 43% since 2009-10 mainly due to conversion of some large fuel oil based fertilizer plants to gas, the consumption in the year 2015-16 was 6.673 million tonnes (MMT) against 11.629 million tonnes in the year 2009-10. However, since last year the trend in sales have started to reverse. Compared to a consumption of 5.961 MMT in the year 2014-15, there was an increase of 12 % (6.673 MMT) in the year 2015-16. Thereby showing a steady increase in consumption, essentially as a result of the sliding oil price.
The increase in furnace oil consumption is impacting the natural gas sales of CGD companies to the industrial and commercial segments. And this trend is amply demonstrated by the current sale of natural gas to the industrial and commercial segments of some of the key CGD players (see attached Table). It is also observed from CGD companies sales figures that natural gas sales to the two segments have shown a declining trend in the years 2014-15 and 2015-16.Natural gas sales to the industrial and commercial segment of these CGD companies have declined by 15% and 7% in the year 2014-15 and 2015-16 respectively. Compare this drop to the 12% increase in furnace oil consumption in 2015-16.
The sliding oil price has resulted into a lower price of fuel oil, thus making it more competitive to natural gas for similar applications in the industry. Even though it is a dirty fuel, but its price is attractive enough for it to substitute natural gas in industrial use. And given the current trend of consumption of furnace oil in the country, exports have declined and imports are showing an increasing trend as per PPAC data.
2014-15 2015-16
Imports (MMT) 0.902 1.194
Exports (MMT) 4.762 2.806
It is well known that natural gas is a clean burning fuel and its use should be encouraged because of its low GHG emission as compared to furnace oil/fuel oil.
Furnace oil is high in Sulphur content and therefore raises concern with respect to the environment and health of the citizens. The use of furnace oil should be discouraged in urban centres to start with and then extended to the entire country.
CGD Companies have been repeatedly requesting policy makers and Government to bar the use of Furnace Oil near city limits or at least have some form of cess (or green tax) to discourage its use owing to environmental damage.