FAI opposes proposal to change priority gas supply policy

The move will force the industry to either reduce urea production or use more and more of imported LNG, FAI, Director General Satish Chander said

Fertiliser industry body FAI today opposed the Oil Ministry move to abolish priority allocation of natural gas saying that any change in the policy will affect the domestic urea output and increase subsidy levels.

"The first priority of fertiliser sector for decades is being sought to be downgraded and made equal to other sectors. This would obviously deprive the fertiliser sector of its allocated gas," the Fertiliser Association of India (FAI) Director General Satish Chander said in a statement.

It will force the industry to either reduce urea production or use more and more of imported LNG, he said.

The priority for natural gas allocation is given first to urea fertiliser plants, then to LPG units, followed by power plants, city gas, steel and refineries.

The Oil Ministry has moved a note to an Empowered Group of Ministers (EGoM) proposing to abolish the priority ranking in natural gas allocation so that the scarce resource currently consumed by urea plants can also be diverted to fuel-starved power plants.

FAI said that lower domestic production means most urea plants will have to run at partial load. Those plants which are more dependent on KG-D6 gas will have to be shut down.

"It may be underlined that the single stream ammonia and urea plants cannot run below 70% of its capacity due to limitation in turn down ratio of large rotating machines. Shutting down fertiliser plants and running the power plant is not a good strategy under any scenario," it noted.

That apart, any reduction in gas supply to fertiliser industry will increase subsidy burden on the government, while port and transport infrastructure would be a big problem if additional urea is imported.

The Fertiliser industry is using more than 12 mmscmd (Million Metric Standard Cubic Meter Per Day) of liquefied natural gas (LNG) out of 45 mmscmd LNG. Gas use is expected to to up further by 2 mmscmd with commissioning of remaining two fuel oil-based plants on gas.

"It may be pointed out that these plants have made more than Rs 5,000 crore investment for feedstock change projects under directions of the government through New Pricing Policy," the industry body said.

Domestic urea production is around 23 million tonnes as against the demand of 32 million tonnes. The rest is met through imports.