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Indian fertilizer

industry vulnerable

to high gas prices

INDIA INDIA’S heavy reliance on imported LNG potassic (P&K) fertilizers such as NPK and
for use in fertilizer production is exposing the muriate of potash (MOP), says Jain.
country’s exposure to volatile gas prices, raising “Russia is a major producer and exporter of
the government’s subsidy bill and could push up fertiliser and supply disruptions due to the war
food prices. are driving up fertiliser prices globally. This will
India should increase redirect domestic gas further increase the subsidy outlay for India.”
production away from city gas towards fertilizer, To meet the higher input costs for domesti-
and move away from LNG imports, in order to cally manufactured fertiliser and more expensive
reduce price concerns and calm fears of higher fertiliser imports, the government almost dou-
food prices, the Institute for Energy Economics bled its 2021/22 budget estimate for the subsidy
and Financial Analysis (IEEFA) said in a recent to $19bn.
report. The prices of domestic gas and imported
India currently spend INR1 trillion ($14bn) LNG are pooled to supply gas to urea manufac-
per year on fertilizer subsidies, and the Rus- turers at a uniform price.
sia-Ukraine war could push this higher. With domestic supplies being diverted to
India also faces lower imports of fertilizer the government’s city gas distribution (CGD)
itself from Russia, and will face higher soaring network, the use of expensive imported LNG
fertilizer prices globally. This could happen even in fertiliser production has been rising rapidly.
though India has good relations with Russia and In FY2020/21 the use of regasified LNG was as
has been reluctant to criticise Russia’s invasion, high as 63% of the total gas consumption in the
for example by abstaining during UN votes on fertiliser sector, according to the report.
the war. “This results in a massive subsidy burden that
One long term solution could be the devel- will continue to rise as the use of imported LNG
opment of green ammonia production in India, in fertiliser production increases,” says Jain.
which could insulate India from expensive LNG “LNG prices have been extremely volatile
imports and a high subsidy burden. The govern- since the onset of the pandemic, with spot prices
ment could also allocate the limited domestic gas reaching a high of US$56/MMBtu last year. LNG
supplies to fertilizer manufacturing instead of to spot prices are forecast to remain above US$50/
the city gas distribution network. MMBtu through to September 2022 and US$40/
Natural gas is the main input (70%) for MMBtu until the end of the year.
urea production, and even as global gas prices “This will be detrimental for India as the gov-
increased 200% from $8.21 per mn Btu in Janu- ernment will have to heavily subsidise the mas-
ary 2021 to $24.71 per mn Btu in January 2022, sive increase in urea production costs.”
urea continued to be provided to the agricul- In the longer term, the development at scale
ture sector at a uniform statutory notified price, of green hydrogen, which uses renewable energy
which led to an increased subsidy. to make green ammonia to produce urea and
“The budget allocation for the fertiliser sub- other fertilizers, will be critical for decarbonis-
sidy is about $14bn or INR1.05 trillion,” says ing farming and insulating India from expensive
report author Purva Jain, IEEFA analyst and LNG imports and a high subsidy burden.
guest contributor, “making it the third year in a “This is an opportunity to enable cleaner
row that the fertiliser subsidy has topped INR1 non-fossil fuel alternatives,” says Jain.
trillion. “The savings in subsidies as a result of reduc-
“With the already high global gas prices exac- ing the use of imported LNG could be directed
erbated by the Russian invasion of Ukraine, the towards the development of green ammonia.
government will likely have to revise the fertiliser And investment for the planned expansion of
subsidy much higher as the year progresses, as it CGD infrastructure can be diverted to deploy-
did in FY2021/22.” ing renewable energy alternatives for cooking
This situation is compounded by India’s and mobility.”it™
dependence on Russia for phosphatic and

Week 11 16•March•2022 www. NEWSBASE .com P7