The Fertiliser Ministry's thrust on ramping up urea capacity is likely to widen the demand-supply gap for natural gas in the domestic market. This is because future capacity addition will be mostly gas-based. The proposed urea investment policy envisages the creation of 10 million tonnes of capacity over the next three years. To plug the gap, the Ministry is open to the use of imported gas for such expansion projects and may even facilitate imports.
The additional gas requirement of the fertiliser sector is pegged at 24 mmscmd. While the power sector has maintained that it will set up gas-based projects only when it is assured of committed feedstock supplies, the Fertiliser Ministry is in favour of gas-based capacity expansion, despite dwindling domestic gas supplies.
Imported gas
The sourcing of gas could be done through such major importers as Petronet LNG and GAIL (India). In fact, even if a project is based on expensive imported gas, its capital cost works out cheaper than a naphtha-based project, sources said.
Currently, the fertiliser sector has been allocated 14 mmscmd of domestically produced gas — from the Reliance Industries Ltd-operated D6 block. However, output from producing fields in the D6 block have registered a constant decline after hitting a peak of 60 mmscmd. The fields currently produce 34-35 mmscmd of gas. A major chunk of this output goes to the power sector.
Through the proposed capacity expansion the Government hopes to bridge the rising shortfall in the domestic urea demand, expected to reach 10 million tonnes by end of 12{+t}{+h} Five Year Plan in 2016-17, from the present 7 million tonnes.
Demand-supply gap
Urea demand is currently pegged at 29 million tonnes and is growing annually at 3 per cent, while domestic capacity now stands at 22 million tonnes.
Under the proposed policy, five of the existing units are likely to take up brownfield expansion, while at least two to three greenfield or new units may come up, sources said. One greenfield unit is planned in Tripura to leverage the ONGC presence in the State, while another is likely to be in West Bengal, sources said.