Gas burns a bigger hole than coal

SIDDHARTHA P. SAIKIA
RICHA MISHRA
THE HINDU BUSINESS LINE

Power produced from imported gas costlier than that through coal

NEW DELHI, JUNE 10:
Electricity produced using imported gas is more expensive than using imported coal.

Tariff figures would be typically around Rs 4.5 a unit for generation of power using imported coal as compared to a level of Rs 7.5 to 8 a unit in case of using liquefied natural gas (LNG).

The power sector, which is suffering because of high fuel costs and supply constraints, says that it would prefer to fire plants using coal from Indonesia or Australia for another decade, at least till natural gas prices drop.

On the face of it, the high costs of gas may be a damper for several companies, but subsequent to the duty exemption on gas imports by the power developers for projects, some have decided to source it themselves.

Power industry experts say that the anticipated trend in the next three years would perhaps retain the balance in favour of imported coal-based generation when compared with LNG.

LESS VOLATILITY

This is because coal reserves are plenty in Indonesia. At the same time, coal from South Africa and Australia competes with Indonesian coal; hence, the volatility in coal prices is less as compared to LNG which is linked with more volatile crude prices. LNG is sourced either from West Asia or from far-away places such as South America and competition in LNG market is not as predominant as coal.

“We see imported coal as a more prominent fuel for power generation in the country for the next five years as compared to LNG both due to pricing and availability,” Mr Anil Sardana, Managing Director of Tata Power, told Business Line.

“Current trend will prevail in the next 5 to 10 years unless there are significant new discoveries in LNG sources,” said an industry official. “New coal mining which is under progress in Mongolia and Mozambique is expected to help maintain the present trend. However, prices are expected not to remain at current low levels. It will become cyclic but without any steep curves,” he added.

According to the coal price indices published by the Indonesian Government, the average price in May for coal of 6,150 kcal a kg stood at $97.67 a tonne. The prices have seen a downward movement since the beginning of 2012. The average price for the same quality in January was $104.21 for each tonne.

On the other hand, price of spot imported LNG is rallying northwards and current prices hover around $16/mmBtu. After the Fukushima Daiichi nuclear disaster, demand from Japan has shot up, pushing LNG prices even higher.

The Government has directed the power sector to go slow on gas-based projects in the 12{+t}{+h} Plan, till domestic gas supplies improve.

Today, gas-based capacity is around 20,000 MW against the total capacity of 1,92,792 MW as on March 27, 2012, which now stands at 2 lakh MW.

Projects of over 50,000 MW capacity are at present under construction by private developers. Private sector is likely to add about 52 per cent of the total capacity in the 12{+t}{+h} Plan.