Page 9 - GLNG Week 11 2022

GLNG ASIA GLNG

Indian fertiliser industry vulnerable

to high gas prices

PERFORMANCE INDIA’S heavy reliance on imported LNG for
use in fertiliser production is exposing the coun-
try to volatile gas prices, raising the government’s
subsidy bill and could push up food prices.
India should increase redirect domestic gas
production away from city gas towards fertiliser,
and move away from LNG imports, in order to
reduce price concerns and calm fears of higher
food prices, the Institute for Energy Economics
and Financial Analysis (IEEFA) said in a recent
report.
India currently spends INR1 trillion ($14bn)
per year on fertiliser subsidies, and the Rus-
sia-Ukraine war could push this figure higher.
India also faces lower imports of fertiliser
from Russia, and will face higher soaring fer-
tiliser prices globally. This could happen even fertiliser imports, the government almost dou-
though India has good relations with Russia and bled its 2021-22 budget estimate for the subsidy
has been reluctant to criticise Russia’s invasion, to $19bn.
for example by abstaining during UN votes on The prices of domestic gas and imported
the war. LNG are pooled to supply gas to urea manufac-
One long-term solution could be the devel- turers at a uniform price.
opment of green ammonia production in India, With domestic supplies being diverted to
which could insulate India from expensive LNG the government’s city gas distribution (CGD)
imports and a high subsidy burden. The govern- network, the use of expensive imported LNG
ment could also allocate the limited domestic gas in fertiliser production has been rising rapidly.
supplies to fertiliser manufacturing instead of to In FY2020-21 the use of regasified LNG was as
the city gas distribution network. high as 63% of the total gas consumption in the
Natural gas is the main input (70%) for fertiliser sector, according to the report.
urea production, and even as global gas prices “This results in a massive subsidy burden that
increased 200% from $8.21 per million British will continue to rise as the use of imported LNG
thermal units ($227.09 per 1,000 cubic metres) in fertiliser production increases,” said Jain.
in January 2021 to $24.71 per mmBtu ($683.48 “LNG prices have been extremely volatile
per 1,000 cubic metres) in January 2022, urea since the onset of the pandemic, with spot prices
continued to be provided to the agriculture sec- reaching a high of $56 per mmBtu [$1,548.96 per
tor at a uniform statutory notified price, which 1,000 cubic metres] last year. LNG spot prices
One long-term led to an increased subsidy. are forecast to remain above $50 per mmBtu
[$1,383.00 per 1,000 cubic metres] through to
“The budget allocation for the fertiliser sub-
solution could be sidy is about $14bn, or INR1.05 trillion,” said September 2022 and $40 per mmBtu [$1,106.40
the development report author Purva Jain, IEEFA analyst and per 1,000 cubic metres] until the end of the year.
guest contributor, “making it the third year in a
“This will be detrimental for India, as the gov-
of green ammonia row that the fertiliser subsidy has topped INR1 ernment will have to heavily subsidise the mas-
sive increase in urea production costs.”
trillion”.
In the longer term, the development at scale
“With the already high global gas prices exac-
production in erbated by the Russian invasion of Ukraine, the of green hydrogen, which uses renewable energy
India, which government will likely have to revise the fertiliser to make green ammonia to produce urea and
could insulate subsidy much higher as the year progresses, as it other fertilisers, will be critical for decarbonis-
ing farming and insulating India from expensive
did in FY2021-22.”
This situation is compounded by India’s LNG imports and a high subsidy burden.
India from dependence on Russia for phosphatic and potas- “This is an opportunity to enable cleaner
expensive LNG sic (P&K) fertilisers such as NPK and muriate of non-fossil fuel alternatives,” said Jain.
potash (MOP), added Jain.
“The savings in subsidies as a result of reduc-
imports. “Russia is a major producer and exporter of ing the use of imported LNG could be directed
fertiliser, and supply disruptions due to the war towards the development of green ammonia.
are driving up fertiliser prices globally. This will And investment for the planned expansion of
further increase the subsidy outlay for India.” CGD infrastructure can be diverted to deploy-
To meet the higher input costs for domesti- ing renewable energy alternatives for cooking
cally manufactured fertiliser and more expensive and mobility.”™

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