Outlook for gas: Plant load factor to double by FY25; fertiliser and power sectors to benefit from move

Fertiliser and power sectors are the largest consumers of natural gas, consuming 51% of total gas available in the country.

Utilisation levels of gas-based power plants are seen to double by FY25 from current levels, driven by increased domestic gas production from the east coast fields and prices of liquefied natural gas (LNG) becoming competitive. As per a recent report by HDFC Securities, plant load factor (PLF) for gas-based power plants are seen to rise from 18% in July this year to 36% by FY25, and “this should drive an incremental total demand of 13 million standard cubic meter per day (mscmd) between FY21-25 (estimated)”.

Fertiliser and power sectors are the largest consumers of natural gas, consuming 51% of total gas available in the country.

Among the 24,900 megawatt (MW) of installed gas-based power stations in the country, most of them are sitting idle due to low availability of the fuel. Around 12,000 MW of gas plants are stressed assets, 5,600 GW have had no gas supplied to them in FY20, while the rest have limited supplies. Average PLF of India’s gas-based power plants increased to 27.4% in April-July, 2020 as spot LNG prices fell to about $2-3/ million British thermal unit (mBtu). Reaping the benefit of lower fuel rates, around 2,600 MW of state-owned gas-based plants of Gujarat located near import terminals (Pipapav, Uran, Dhuvaran, Utran and Hazira units) increased their PLF levels 2-3 times from the previous year.

Electricity production from Torrent Power’s 1,200 MW Dgen unit and NTPC’s 657 MW Gandhar gas plant — also located in Gujarat — have more than doubled from last year. On the other hand, most of the units at Lanco Kondapalli (1,476 MW), GMR Rajahmundry (768 MW), GVK Gautami (465 MW) — all located in Andhra Pradesh — continue to lie idle. With LNG prices rising again in the ongoing fiscal, PLF of gas-power plants have dropped to 19.2% in April-July period. The recent slump in utilisation is a consequence of high LNG price, when it crossed $9-10/mbtu, which has resulted in a negative impact on consumption. “Multiple fuel sources should be used to hedge the power generation risks, and all the current installed capacity is not necessarily available capacity,” a senior industry official said, adding that “there are days when less than 1,000 MW renewable capacity is available in Gujarat out of the total installed green capacity of 14,000 MW in the state”.

According to the government’s submission to a parliamentary committee in 2019, to make gas-based power commercially viable, the cost the fuel — including transportation costs and taxes — should not be more than $6/mBtu. However, the calculations were based on contemporary plant efficiencies of 50%-55%. With latest technologies the plant efficiency can increase to 62% and with such efficiencies, even at gas price of $8/mbtu, the variable cost of gas-based power can be around Rs 3.6/unit which can compete with other conventional power sources. In FY10, driven by availability of cheaper domestic gas from RIL’s KG-D6 block, gas based power plants were operating at a 67% PLF, HDFC Securities pointed.

Before the offshore fields on the eastern coast of the country started producing at the end of 2020, gas power sector had sought for “separate bucket for allocation/auction of gas” and wanted some quantity of the fuel produced to be earmarked for power plants. Domestic natural gas production increased 19.2% to 2,898 mscm in August on a year-on-year basis, mainly due to higher production from Reliance Industries and BP’s ultra-deep-water field in the KG-D6 Block of the Krishna Godavari basin. Production also commenced on August 31 from state-run Oil and Natural Gas Corporation’s U1B deep-water gas located in KG-DWN 98/2 block, which has an estimated peak production of 1.2 mscmd.