CRISIL: Gas Power Projects Need Blended LNG (India)

Prospects for upcoming gas-based power plants in India are not as adverse as is generally believed, as per a recent report by CRISIL Infrastructure Advisory.

The report notes that domestic gas production cannot meet the requirements of 8,000-10,000 MW of gas-fired power generation capacity expected to come on stream over the next few months. However, this capacity, that has an investment value of Rs.35,000-40,000 crore, can avoid financial distress by tying up LNG (liquefied natural gas) supplies to make up for the shortfall of domestic gas.

Gas discoveries in India over the last few years prompted an aggressive addition to the gas-based power generation capacity in the country. However, gas production from these discoveries has lagged expectations. This has created a challenge for these new plants that will add a substantial 70% to the existing gas-based capacity of 16,000 MW. They will now have to explore a mix of domestic gas and LNG to stay afloat.

According to Gurpreet Singh Chugh – Head, Natural Resources at CRISIL Risk and Infrastructure Solutions Limited, “Power purchase costs of power utilities in India have risen over the last few years. This makes LNG a viable blending option for them in the present situation”.

The CRISIL Infrastructure Advisory report has analysed the trends in power purchase costs in India over the last few years. The analysis reveals that large power consuming states in India currently buy 15-20% of their power at a variable cost of Rs.2.5 per unit to Rs.4 per unit ; and that power purchase cost have shown a rising trend as evidenced in the prices contracted by power purchasers in the recent Case 1 bids. Gas-based power plants can match the currently prevailing power purchase costs by blending domestic gas with imported LNG to the extent of 25-30%.

Adds Ajay Dwivedi – Director, CRISIL Risk and Infrastructure Solutions Limited, “If these projects were to just wait for their natural gas allocations to materialize, it is very likely that they will not be able to even meet their debt service commitments. However, those projects that proactively tie-up LNG supplies will ensure that they remain financially healthy enough to service their lenders, while the question of domestic gas production sorts itself out”.

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LNG World News Staff, November 15, 2011; Image: Petronet LNG