15-09-2017

Coal shortage triggers higher LNG offtake by Indian power companies

Coal

Indian power generation companies are rushing to book liquefied natural gas (LNG) to maintain generation, as coal shortages threaten capacity utilisation of thermal power plants.

Over the past two to three days, power companies have made new bookings of an estimated 10-million standard cubic metres a day of LNG to get stranded gas-based power plantsback into operation.

India has a total installed power generation capacity of 329 226 MW of which 25 185 MW is gas based. Of the total gas-based capacity, it is estimated that as much as 14 000 MW was “stranded”, either owing to the absence of LNG supplies or prevailing LNG prices making operation unviable.

However, two thermal power company officials have pointed out that the emerging shortage of coal has put severe limitations on their thermal power plants, leaving powercompanies with little option but to shift their focus to reviving idle gas-based power plants.

As reported by Mining Weekly Online earlier, data from the Central Electricity Authority (CEA) shows that in August 2017, two thermal power plants had no coal stock, five plants had only a day’s requirement, eight plants had two days’ of stock and 13 plants had three days’ stocks. The CEA categorises thermal power plants with less than a week’s supply as “critical” and those with four days or less as “super critical”.

According to the CEA, during 2016/17, thermal power plants’ coal stocks averaged 25 days of consumption, which is now down to just 11 days.

The power company officials, including one from government-owned and -operated NTPC, said that the series of LNG swap deals negotiated by Indian gas infrastructurecompanies over the past few months, had improved the economic viability of power companies using LNG to maintain generation capacities even as coal supplies became tighter in the domestic market.

According to rough estimates, the LNG swap deals with major suppliers in Australia, Oman and the US had on average brought down the cost of natural gas benchmarked to brent crude to about 12.5%, from levels of 14.5% of the brent price earlier, with the additional bonus of shifting transportation costs from the buyer to the seller, against a backdrop of a sharp fall in international LNG prices in recent months.

Last week, India’s LNG Petronet agreed to renegotiate its 2009 deal with Exxon Mobil for the purchase of 1.44-million tons a year from the latter’s Gorgon LNG fields and once the reduced price was clinched in a few months, LNG Petronet would commit an additional one-million tons a year of LNGofftake.

Among the other swap deals was infrastructure major GAIL India’s conclusion of swaps with US LNG suppliers, including Cheniere Energy, that would impact on 60% of the offtake committed by the Indian company at a time when international crude averaged around $100/bl.

Meanwhile, anticipating a coal shortage over the short to medium term, power companies have moved the federal government to include natural gas under the newly implemented Goods and Service Tax (GST).

Companies argue that the inclusion of natural gas into the uniform pan-India tax regime will reduce total incidence of tax on LNG to 5% from between 15% and 20% currently, when the commodity has been kept outside the purview of the GST.

A lower incidence of tax on LNG will enable power companies to aggressively push higher generation capacities for gas and circumvent the coal shortage.

Source: MiningWeekly

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