Renewed ray of hope for natural gas

There is welcome news on an abundance of natural gas. Reports suggest prices crashing to a low $2 per million metric British thermal unit (mmBtu).

Natural gas is an elegant, economic and environmentally ‘less harmful’ feedstock for a variety of industries like fertilisers, petrochemicals, power, and as fuel for transportation and domestic use. In India, large quantities of natural gas were produced as associated gas at the Bombay High oil fields; but most of it was flared until the 1980s. In the 1990s the Hazira-Bijaipur-Jagdishpur (HBJ) gas pipeline was constructed over 1,900 km for feeding six large fertiliser plants, three gas turbines for producing power and LPG plants in the states of Maharashtra, Gujarat, Rajasthan, Madhya Pradesh and UP. The huge increase in production of foodgrains in the northern states post the Green Revolution justified this investment. But, the south missed bagging a share of this. Fertiliser plants in the south - Cochin Fertilisers (unit of FACT), SPIC, Madras Fertilisers and Mangalore Chemicals and Fertilisers - fed by naphtha from refineries adjacent to these, were catering to the fertiliser requirements of the three peninsular states. The coastal advantage also facilitated handling fertilisers imported in large quantities.

The major beneficiaries of natural gas were Gujarat and Maharashtra. Gujarat, which also produced gas onshore, focused on development of a number of ports and went for import of natural gas in large quantities. These have been feeding a large number of fertiliser, chemical, petrochemical, pharma units, power plants. It was also used to run large capacity steel mills, public transport vehicles, glass, ceramic tile and other plants, apart from supply of piped gas for domestic use. Gujarat accounts 60 pc of natural gas consumed in India and a lion’s share of production of chemicals.

In the first decade of the 2000s, there was lot of hope on discovery of gas reserves off the Andhra coast in the Krishna-Godavari basin. Reliance succeeded in setting up production facilities with large investments and was producing over 60 mn metric standard cubic metres of gas a day (mmscmd). Reliance set up in very quick time the 1,400 km Kakinada-Baruch gas pipeline to transfer gas to Gujarat and Maharashtra on hopes of feeding large capacity fertiliser and power plants of its own. The plans went awry with the government taking control of the allocation of gas and also its prices. There was an unexpected crash in production at Reliance dropping to less than 25 msmcmd. Global gas prices also shot up to $16, making use of gas unattractive.

The southern fertiliser plants based on naphtha turned sick due to the huge spurt in price of naphtha which was de-controlled. The promise of these switching to gas was also thwarted by the absence of a national gas grid and lack of efforts to import gas like Gujarat.

Tamil Nadu has been traditionally focusing on the engineering industry. It emerged strong in the automobile and auto components sector and accounts for a share of over a third of production of these sectors. The state also made good use of its port facilities – it has four large ports with three of these near the Chennai metro and thus emerged a significant exporter of automobiles and auto components - 5 large capacity tyre plants, a large flat glass making unit apart from capacities for castings, forgings have been created in TN.

Apart from automobiles, TN was strong in traditional industries like cement, leather, sugar, textiles and, from post 1990s, in IT and ICT sectors. But the state did not focus on the chemical and petrochemical sector. This despite the infrastructure created at five chemical clusters spread across the state; the heavy chemical unit of Mettur Chemical and Industrial Corporation Ltd set up in 1936. Chemicals and Plastics India Ltd that took over Mettur Chemicals in late 1980s has emerged a significant producer of PVC. There was great promise on a petrochemical complex built around the large refinery set up in the1960s at Manali.

The recent announcement by the Tamil Nadu government of Protected Special Agricultural Zone’ (PSAZ) bans setting up of projects considered inimical to the environment and ecology of the Cauvery delta districts – Thanjavur, Tiruvarur and Nagapattinam and blocks of Cuddalore and Pudukottai.

The banned projects include exploration, drilling and extraction of hydrocarbons. There is understandably concern over the fate of the two large petrochemical projects cleared for this region – the 9 MT capacity refinery of Chennai Petroleum Corporation (CPCL) at Nagapattinam at a cost proposed around Rs 30,000 crore and the recently announced petrochemical plant at Cuddalore by Haldia Petrochemicals at around Rs 50,000 crore of investment.

Senior officials said there is no going back on these large investments. More important is the change taking place at the Ennore-Manali region in which the CPCL and a number of downstream units have been operating. IndianOil’s gas terminal at the Ennore Port for importing CNG, set up at a cost of over Rs 5,500 crore, has become operational. Pipelines from the port to Manali has been delivering gas to a number of petrochemical units.

S Ilanahai, President, Chemical Industries Association and CMD, Cetex Petrochemicals, Manali, pointed to a double whammy: availability of piped CNG in profuse quantities and tertiary treated water made available by the Chennai Metropolitan Water Supply and Sewerage Board. These have improved the viability, profitability and future prospects for expansion of languishing industrial units. The IndianOil gas terminal can handle import of basic chemicals like propane and ethane which can be converted into propylene and ethylene, that can feed a number of downstream petrochemical units.

In due course, these will improve the prospects for setting up a large naphtha cracker unit at Manali, said Ilanahai. Likewise, the pipeline from Chennai to Thoothukudi would make good progress. Already IndianOil that has won the contract for supplying piped gas to Salem and Coimbatore and Torrent Gas that won the bid for providing piped gas to Chennai and Tiruvallur districts, are expected to provide supplies to domestic and industrial consumers from 2021. With gas prices falling steeply there is hope for TN catching up for the lost opportunities in this high growth sector. This will provide more stability to TN’s industrial economy.