Low gas prices may help revive power assets

New Delhi: Gas prices in international spot markets are at lowest at about $3 per mmbtu, a boon for the ailing Rs 1 lakh crore power assets if the Centre is able to pull off the proposed revival scheme announced in the budget for 2019-20.

The present prices may be short-lived, with some countries banning Chinese shipments due to Covid-19 scare, but experts said the rates are likely to be in the range of $4-4.5 per mmbtu for a few more years owing to less demand and excess supply.

ET had reported on January 7 that the Union power ministry had finalised two schemes to procure 4,000 MW from gas-based power plants to rescue the stranded plants. The schemes include procuring 2,000 MW from gas-based plants through auction and bundling it with an equal capacity of solar power. Another 2,000 MW will be procured through online reverse auction, on a model similar to previous such schemes.


A senior government official said the scheme is close to finalisation and will be put up before the Union Cabinet for approval. He, however, said approval from state governments on waiver of taxes is still pending.

“Ample LNG supply is lined up from key countries in the next five years and demand is sluggish in picking up. Hence, structurally LNG prices will remain below $5 per mmbtu,” said Debasish Mishra, leader, energy and resources for Deloitte in India. “India must take advantage of this and make a serious push on renegotiating oil-linked contracts on supply side and make use of the 24 GW of stranded gas power capacity either on standalone basis or combined with RE (renewable energy).”

He said spot LNG prices in Asia are at an all-time low below $3 per mmbtu, against $20 per mmbtu following the Fukushima nuclear power plant disaster in February 2014, when Japan shut down more than 50 nuclear reactors.

Industry experts said warmer winters in Korea and Japan, restart of Japanese nuclear power plants and Covid-19 outbreak coupled with increase in LNG capacity in Australia and the US and pipeline connectivity of China and Russia have led to glut-like conditions in global LNG markets. This has led to record low prices of the imported gas.

They said even at the delivered ex-ship price of about $3.5 per mmbtu in India, the LNG costs about $7 per mmbtu to power plants with transportation and regasification charges and state and central GST, necessitating a scheme with waivers but no subsidy.

The proposed scheme requires waiver of state and central taxes on imported LNG, waiver of GST on regasification and transportation of the fuel, reduction of pipeline tariff charges and marketing margin by state-run gas transporter Gail.