Power plants may not get natural gas on priority basis
The government proposes to withdraw priority in gas allocation to power plants, a major setback to the already stressed power sector and country’s top power producer NTPC. The proposal floated by the ministry of petroleum and natural gas seeks dismantling the existing pricing for domestic gas and replace it with a market based discovery mechanism on a gas exchange by pooling the local fuel with LNG, sources said. A senior government official said the oil ministry has floated a cabinet note proposing the new price discovery mechanism and has removed power plants from the priority allocation list. The other two sectors- city gas distribution and fertiliser are proposed to be kept on the list. The power ministry has vehemently opposed the proposal saying power is a regulated sector and needs domestic gas allocation more than any other sector,” said the official. Another official said the price increase is still manageable as NTPC can pass through the costs to consumers but taking away the basket of gas allocation from power sector will be a greater setback. NTPC has seven gas-based power plants with a capacity of over 4,000-mw, which require up to 7 mmscmd. The power sector gets 39% of the total domestic gas distributed, and NTPC consumes a large part of it. An NTPC official said the move will be a major setback for the company. “It will be a bad move for the company and the power sector as a whole. Most of our gas comes from ONGC. Also, the investments made in the gas pipelines by GAIL to supply gas specifically to us will be affected,” the official said. Data available with the Central Electricity Authority showed the 24,812-mw gas based power stations in the country generated higher than the target in September and in the financial year so far. The projects operated at a capacity of 23.3% between April and September. While gas stations of central PSUs operated at around 30% capacity, most of the private plants of companies like GMR Energy, Sugen, Lanco Infra were shut. The private plants operated at average 16% plant load factor (PLF). ET had on October 24 reported that the government is planning a major gas-pricing reform by permitting trading of all domestic supply on a local exchange, to help discover market price for gas locally and render current gas price formula and ceiling redundant. The oil ministry proposes to allow trading of all gas produced in the country on the proposed exchange. Presently, a four-year-old government-set formula, which takes prices from four key global gas markets to decide local rates every six months, applies to most gas produced in the country. The formula price – currently at $3.36 per million metric British thermal unit (mmBtu) – has often been criticised by producers for being too low to attract investment in the upstream sector. Price ceiling for gas from difficult fields is currently at $7.67/mmBtu.