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LNG Price Hike will hurt consumers

india Updated: May 12, 2007 05:04 IST
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Come June and many consumers will pay more for the natural gas they consume. That's because Petronet LNG, the country's biggest importer of liquefied natural gas (LNG), will raise prices of gas from June to subsidise supplies to the 2,184-MW Dabhol power plant.

Petronet will raise the price of gas from the prevailing $4.4 per million British thermal unit (mbtu) to $5.83 per mbtu from June, when it starts supplying gas to Dabhol through a new pipeline, which will connect its re-gasification plant at Dahej to Ratnagiri Gas & Power's Pvt Ltd's power plant at Dabhol.

This will hurt consumers of LNG, which includes fertiliser and power companies, industrial, auto and retail consumers. The fertiliser industry, which consumes 40 per cent of the LNG (it consumes 7 million standard cubic metres of LNG/day out of Petronet's supply of 18 million standard cubic metres of LNG per day.

This will increase cost of production of urea by $9-$12 per tonne ($9-10 for plants which use only a third of the feedstock as LNG, the remaining met by subsidised gas), estimates S. Nand, director, technical, Fertiliser Association of India. The impact of higher energy cost would be nearly Rs 500 crore, estimates, Nand.

With the government reluctant to increase retail prices of urea, this will mean an increase in fertiliser subsidy to that extent. Increase in gas prices will hurt power consumers, as increase in fuel costs is a pass-through in tariff. If state electricity boards, who buy power from power producers like NTPC, are unable to increase tariff, their losses will go up, which will have to be bailed out by tax payers.

Several industrial units in Gujarat like Essar Power may pay 32 per cent more for gas from June as suppliers like Gajarat State Petroleum Corporation and Gujarat Gas, who buy LNG from Petronet, will be forced to increase prices. ''We feel it is not fair to charge us a higher price to subsidise customers in Maharashtra, '' Saurabh Patel, Gujarat's energy minister told Bloomberg

In March, the central government had authorised the state-run Petronet LNG to increase the price of gas. In turn, Petronet told GAIL, which distributes the gas, that it will cancel an existing supply contract valid until 2008 and increase prices when Dabhol gets hooked up to Petronet's pipeline distribution network, Prosad
Dasgupta told Bloomberg.

The company imports 5 million tons a year of LNG from Qatar under a multiyear contract and resells all the fuel to customers in northern and western India. The company has no gas to spare from the Qatari contract and is importing about 1.5 million tons of LNG a year from the spot market to supply Dabhol, Dasgupta said. Gas at Henry Hub, the trading point that sets the US benchmark, costs about $7.78 a mbtu. Consumers in Asia must pay more to import the gas.

Email author: ranju.sarkar@hindustantimes.com

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