India: The Fertilizer Industry Demands More Natural Gas

The Indian fertilizer ministry wants to encourage new investments in the natural gas segment as the domestic consumption of urea is expected to go up by about 13% to 34 million tonnes in five years. The natural gas output from its most prolific field—Reliance Industries’ D6 field in the Krishna Godavari basin–is declining. Inadequate availability of gas is delaying many power and fertilizer projects. The previous policy to encourage investments helped in adding only 2 million tonnes of capacity as there was no certainty of getting natural gas at a steady price over the long term. Policy makers are hoping to address this hurdle by giving pass through status to gas price. Compared to the domestic price of US$4.2 per million metric British thermal unit (mmBtu), imported LNG is available at about US$15-18 a unit. While the domestic gas production is declining, the fertilizer sector’s requirement will go up by 65 million metric standard cubic metres a day by 2014-15. As of now, fertilizers get top priority in the natural gas supply, followed by the city gas distribution sector. Power sector, the biggest consumer of gas in India, comes third on the priority list for gas allocation despite its critical role in the national economy.

There are different roads to increase India’s natural gas supply.

India has asked the USA to supply it with liquid shale gas, as it continues to reduce dependence on oil imports from Iran, which is targeted by sanctions from Washington due to its aggresive nuclear ambitions. India has pledged to continue reducing imports from Iran, which used to be its No. 2 supplier after Saudi Arabia, but as far as we know no specific target has been set yet. Shale gas development in the United States has turned the gas market there from shortage to glut, and cheap US LNG export projects are soon expected to provide stiff competition for Australian LNG export developments. The US Energy Information Administration estimates that China holds the world’s largest shale gas reserves, with 1,275 trillion cubic feet, followed by the United States at 862 trillion cubic feet.

Another supply road could come from Turkmenistan through a 1,700 km cross-border pipeline passing through Afghanistan and Pakistan. While the transportation charges for gas would be decided by the consortium of companies that would construct the Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline, India would pay a US$0.50 per million metric British thermal unit (mmBtu) transit fee to Afghanistan and Pakistan for letting gas through their territory. In spite of this charges charges, the price India would pay to the supplier is expected to be lower than the US$14-16 per unit of gas now available in the global spot market. India is estimated to get 38 mmscmd and state-owned gas transporter Gail India would lift the gas for the local consumers.

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