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Govt not to supply LNG to stranded gas power projects from next month

A gas-based power plant owned by Tamil Nadu Govt

The government is not planning to extend the two-year-old scheme to supply subsidized, imported natural gas to stranded gas power projects when it expires this month, according to a senior power ministry official.

“We got a representation from the association of power producers requesting us to extend the scheme,” said the official “but we have decided against it.”

The scheme has been operational for two years, and was put in March 2015 when Japan liquefied natural gas prices were at $14.28 per million British thermal unit. Since then, they have crashed to $7.50 per MMBtu, tracking the decline in crude oil prices.

At the time, the government promised a combined subsidy of Rs 1,590 cr for six months to gas power plants participating in the scheme so as to enable them to bring down their power price to Rs 4.70 per unit.

Without the subsidy support, power produced from LNG would have had to be priced at higher levels, which would have made it unaffordable for state power distribution companies to purchase.

Eligible beneficiaries included units of NTPC Ltd, Gujarat State Electricity Corp. Ltd, Torrent Power Ltd, CLP India Pvt. Ltd, GVK Industries Ltd, Lanco Kondapalli, GMR Energy Ltd and Ratnagiri Gas and Power Pvt Ltd.

Subsidies were given in the second six-month round as well.

However, in the third round of bidding held last year, gas power plants who were not receiving subsidies were also able to match the preset power price. As a result, they got priority in terms of supplying power to distribution companies, resulting in zero subsidy outgo for the government.

Given the low prices and the situation seen in the last round of bidding, the government has decided to stop the import and supply of Regassified LNG to stranded gas plants.

REVIVAL

Around 8.1 GW of gas-based capacity was brought back into operation due to the scheme in the first phase.

India has a total of about 24.1 GW of gas-based electricity (out of 300 GW for all sources). Of this, a capacity of 14.3 GW –comprising 29 plants — was not functioning at the time because of lack of fuel supply.

By mid-2015, however, the price of LNG began to decline sharply and it was starting to be used in place of piped natural gas.

Much of India’s gas-based power capacity — especially in Andhra Pradesh — was constructed in anticipation of gas production from the Krishna Godavari D6 block operated by Reliance Industries. However, the D6 block is producing only a fraction of its projected output — something that the government is blaming the operator for.

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