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India gas prices may double

Aim is to boost production by biggest producer

– The light bulb in Komal’s room flickers and dies, preventing the 17-year-old from studying for high-school exams as she strives for an education that can help her escape the squalor of her home in a slum here.

Komal, who goes by one name, is one of the hundreds of millions in India suffering outages that can last hours a day even in parts of the national capital.

The cuts may yet deepen, as a government plan to double the price of natural gas on April 1 to boost production risks making a fuel that accounts for about a tenth of power-generation capacity too costly.

“Gas power is extremely sensitive to gas prices,” N.N. Misra, operations director at state-run NTPC Ltd., the nation’s biggest power generator, said in a Feb. 14 interview. “We’re currently running our plants at 35 percent capacity. It is anyone’s guess what will happen if the price doubles.”

India’s aim is to spur more output from Reliance Industries Ltd., operator of the country’s biggest natural gas field, and lure explorers such as Exxon Mobil Corp. by raising prices closer to global rates. The risk is that indebted electricity distributors will demand more coal-fired power instead, even as the country struggles to mine enough of the fuel and nations from China to the U.S. seek cleaner gas-based power.

India in June approved a new formula for calculating the price of gas, which will take it to about $8.4 per million British thermal units from $4.2. The tariff would remain lower than the benchmark import price in the spot market of more than $16. That import rate was at about $8 in 2009.

Even as the government pushes ahead with raising the price, it requires power distributors to sell electricity below cost, forcing them to increase debt to pay for supplies.

“There’s a view gas prices above $6 aren’t viable for power plants,” said Ashok Khurana, director general at the Association of Power Producers, which counts non-state generators Tata Power Co., Adani Power Ltd. and Reliance Power Ltd. as its members. “If prices double, the plants will have no buyers and will have to shut.”

The weighted average electricity tariff for gas-fired power in India was 3,840 rupees ($62) per megawatt hour in the year ended March 2012, Bloomberg New Energy Finance wrote in a Jan. 6 report. The average capacity use that year was about 57 percent, which required a tariff of more than 4,500 rupees per unit to take a profit, according to the report. Once gas prices double to $8.4, and at 40 percent capacity use, rates need to be 6,000 rupees per unit.

Keeping the lights on remains a key challenge for Prime Minister Manmohan Singh, ahead of the general election due by May, as he struggles to revive economic growth from about a decade low in the nation of 1.2 billion people. In 2012, two power-grid collapses in 36 hours left 600 million people sweating.

India had the third-largest energy demand in the world after China and the U.S. in 2009, according to a report by the International Energy Agency in 2012.

Coal accounts for more than 70 percent of generated electricity, followed by hydro power at 15 percent and natural gas at 10 percent, it said. The power sector’s share of domestic natural gas consumption is 53 percent, followed by the fertilizer industry with 26 percent, the IEA said in the analysis.

India produced 558 million tons of coal in the year ended March 31, trailing a demand of 696 million tons. The gap between local output and demand for the fuel is expected to widen through the year ending March 2017, according to a presentation on the website of Coal India Ltd., the world’s biggest producer of the fossil fuel.