KG gas can benefit 137 million farmers

Fertilizer industry can save $ 690 million per annum.

As RIL begins gas production from KG D 6 block, there could be some respite on way for the fertilizer industry and the farmers.

By using 1 MMSCMD of D6 gas the fertilizer industry would save $135,000 and by consuming the entire 14 MMSCMD the fertilizer industry would save $1.89 Million every day or $690 Million per annum.

"In rupee terms, this implies a saving of Rs 3450 crores to the nation in terms of fertilizer subsidy Rs 3450 crores which amounts to 21% of subsidy on domestically produced urea," said sources in Reliance Industries.

KG gas is also expected to satisfy the needs of 137 million farmers, he further said.

Using back of the envelope calculation, 1 MMSCMD is used for manufacturing 0.50 Million tonnes of urea, as feedstock, hence 14 MMSCMD would imply 7 Million tones. Currently, the Nitrogen usage in India is 59.2 Kgs per hectare which implies urea usage at 126 kgs per hectare.

Therefore, 7 million tonnes of additional urea produced by the fertilizer plants can feed 55 Million hectares. As per national statistics, an average farmer controls 0.40 hectares, hence approximately 137.50 Million farmers will be able to partake benefits of the D6 gas, according to RIL sources.

As per Citi Group report dated March 25, 2009, India’s current urea demand is 26 Million tones, out of which 6 Million tonnes per annum are imports. The demand for gas from the fertiliser sector is 44 MMSCMD and supply is only 30 MMSCMD, leading to a deficit of 14 MMSCMD.

India imports 6 MMTPA of urea every year and this is likely to increase to 9 million tonnes per annum by FY 2009, sources in RIL said. At the current rate, the subsidy on imported urea is currently estimated at Rs 11000 crores and the subsidy on domestically produced urea is estimated at Rs 16516 crores. Hence the total subsidy is Rs 27516 crores or about $ 5.5 bn.

In future, India plans to convert some if its existing liquid fuel-based plants to fertiliser as well as revive closed fertiliser plants as well as expansion or debottlenecking plans of existing urea plants. The total demand from the fertiliser sector in coming years will shoot up to 74 MMSCMD (44 MMSCMD from existing plants, 13 MMSCMD from debottlenecking/expansion, 7 from conversion of naphtha and FO/LSHS units and 10 from revival of closed plants).

In the year 2008-09, the total subsidy bill on urea alone is Rs 27,516 crores ($ 5.5 Billion), as the feedstock demand is 42 MMSCMD and the supply from APM and other sources is only 28 MMSCMD. To meet the demand underserved urea companies are currently using expensive naphtha and other liquid fuels.

At the current price, the cost of alternate fuels viz naphtha is about $445 /tonne which is about $10/mmbtu. Given that the landed cost of D6 gas is $6/mmbtu at the battery limit of the fertilizer plants, it is a direct savings of $4/mmbtu, according to an industry source.