Between urea industry and gas producers over LNG price

Published: Monday 31 May 2004

india's urea industry has decided not to sign contracts with liquefied natural gas (lng) marketers Gas Authority of India Limited (gail) and Indian Oil Corporation (ioc) Limited. This is because it wants the stalemate over lng prices to get broken first. It may be noted that in the majority of the country's 30 plants, natural gas (ng) is required to produce urea -- the main nitrogenous fertiliser used by farmers across the country. However, due to the absence of pipelines, it has to be liquefied for transportation. It is then gasified to change it to the ng form again.

"We are in dialogue with the distributors on the issue of prices," says Viren Kaushik, director general, Fertiliser Association of India. "Currently, there is a shortfall of about 25-30 per cent in the availability of ng and gas-based units are forced to use naphtha for a part of their production," discloses Kaushik. The gap between demand and supply is expected to widen further, as other units using naphtha also become ng-based. In order to import lng and deal with the shortfall, Petronet lng Limited (pll), a joint venture company of four oil majors -- Oil and Natural Gas Corporation, ioc, Bharat Petroleum Corporation Limited and gail -- was floated.

" pll wants to charge between us $4.87 and us $4.93 per million British thermal unit (mmbtu) for lng. But the fertiliser industry refuses to pay more than us $3 to us $3.5 per mmbtu," says an official in the Union ministry of chemicals and fertilisers. "Under the current fertiliser policy, the government reimburses the lng price. But in the long run, the aim of both the government and industry is complete de-regulation. Once that happens, we will not be able to compete with imported urea if the gas prices are high," Kaushik says.

A group of ministers has been entrusted with the task of resolving the impasse. But no solution is expected till a new Union government is formed after the Lok Sabha elections.

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