Connect with:
Thursday / December 26. 2024
HomePosts Tagged "fertiliser (urea) industry."

 By Rajesh Kumar Mediratta, MD and CEO, IGX (Indian Gas Exchange)

Gas Exchanges provide an alternate avenue for buyers from the fertiliser sector and sellers to meet their natural gas demand and facilitate transparent price discovery. This inherent quality of Gas Exchanges has led to consistently lower price discovery as gas accounts for 70-80 per cent of the cost of fertiliser production.

Out of India’s annual natural gas consumption of ~156 MMSCMD (Million Metric Standard Cubic Meters per Day), nearly 52 MMSCMD is consumed by its fertiliser (urea) industry. Limited domestic gas production from nominated fields, coupled with the restrained allocation of domestic gas to the sector, has led the fertiliser industry to meet almost 80 per cent of its gas requirement through imported LNG (Liquefied Natural Gas). As per the allocation policy, fertiliser consumers are accorded priority after City Gas Distribution entities. Hence, incremental consumption of gas by the fertiliser sector is satiated from Re-gasified Natural Gas (R-LNG).

However, just about 60-70 per cent of such R-LNG procurement by the fertiliser industry is through long-term/mid-term purchase agreements, and the remainder volumes are sourced through Empowered Pool Management Committed (EPMC) on a spot basis. Domestic gas is pooled with R-LNG to provide natural gas at a uniform delivered price to all the fertiliser plants connected to the Gas Grid.

Bearing the brunt of rising international gas prices

The increasing use of imported gas by the fertiliser sector while the international gas prices are at a record-high, is a cause for worry. Gas accounts for 70-80 per cent of the cost of production, depending on feedstock prices and the energy efficiency of the fertiliser plant. Alternate avenues for procurement, such as a technology-enabled marketplace providing flexibility, efficiency and competitive price discovery, may help in lowering the expenditure of the fertiliser industry.

Subsidies provided by the Government of India cover 100 per cent of the gas procurement costs for urea production. The difference between the delivered cost of urea at the farm gate and net market realisation by the urea units is given as a subsidy to the urea manufacturer/ importer. The present subsidy outgo is around Rs 2,400 per bag (as the market price is about Rs 2,700 per bag). Further, subsidy rates of P&K fertilisers are notified under the Nutrient Based Subsidy scheme.

Considering the huge increase in the prices of fertilisers in the global market, the government has doubled the fertiliser subsidy for this Rabi season. The total fertiliser subsidy outgo for FY 2022-23 would be about Rs 2.25 lakh crore, compared to Rs 1.65 lakh crore last year. These costs have been primarily absorbed by the government to ensure food security as well as safeguard the farmers in our country.

A considerable portion of R-LNG is being sourced by fertiliser units on a spot basis (~30 per cent of total R-LNG procurement) which currently must be routed for an entire quarter through a Pool Operator (GAIL India Ltd) who then proceeds to carry out a plant-wise auction for the procurement of the spot R-LNG volumes on a delivered basis. Due to very high prices being discovered in the quarterly auctions with the entire off-take being on a reasonable endeavour (RE) basis, the pool operator has recently commenced monthly auctions with 40 per cent guaranteed off-take for each plant.

To read more click on: https://agrospectrumindia.com/e-magazine

 By Rajesh Kumar Mediratta, MD and CEO,