India’s biggest power producer, the state-run NTPC, is seeking to terminate a long-term LNG import contract as it perceives the fuel as “too expensive to be used in power generation. NTPC has notified GAIL India, which supplies gas through its affiliate Petronet LNG, stressing its inability to further execute the offtake contract as it cannot sell the electricity it generates from this gas.
The cost of power generated from GAIL’s gas is about 7 rupees per kilowatt hour, an NTPC official told reporters. This is more than double the 3.18 rupee average price at which NTPC sold electricity in the year to March 31, and three times over the current average spot price.
NTPC had signed a 20-year contract with GAIL in 2009, committing to buying 2 million cubic meters of gas per day. As NTPC has reduced offtake to less than 10% of contracted volumes, GAIL reacted by levying take-or-pay penalties.
RLNG is still not cost-competitive with coal
The contract dispute comes as the latest twist in India’s gas sector, highlighting the hurdles that policy makers face in promoting clean energy. Though India’s installed gas-fired capacity could generate nearly 25,000 MW – less than a quarter of it is actually used.
Though spot LNG prices plunged by about a third over the past year, higher transportation costs and taxes within India have overcompensated this fall. Regasified LNG is still not cost-competitive with coal; hence natural gas has not made much inroads in competition with coal – India’s dominant fuel for power generation.
NPTC’s seven gas-fired power plants ran at 25% of their installed capacity in the past financial year, ending March 31, compared with 33% a year earlier, the company said when posting earnings. State-run NPTC owns an operated 4 GW of gas power assets, which account for nearly 9% of its total generating capacity.