India’s massive demand for natural gas is a result of its easy substitution of liquid fuels such as naphtha, fuel oil, diesel etc. India at present is producing less than 100 million standard cubic meter per day (MMSCMD) and another 50 MMSCMD is imported as liquefied natural gas (LNG) (Fertiliser Statistics, 2011-12, Fertiliser Association of India). As natural gas has competing demands from different sectors of the economy for adequate energy—being a clean fuel, requiring less investment and yielding a number of industrial products, it can easily record an additional usage of 100 MMSCMD or more in the near future. Thus, allocation and price have always been regulated by the Indian government.
There is no doubt that natural gas is the cleanest fuel with its lowest carbon content irrespective of where it is used. Fertiliser, however, uses gas as feedstock unlike power generation where it is burned as fuel. Used as fuel, the carbon in natural gas is converted into carbon dioxide and emitted. But in case of fertiliser (urea) production, both hydrogen and carbon are used, which reduces the emission of green house gas.
While the demand for natural gas has always exceeded the availability for last two decades, there were times when natural gas was flared as waste with no downstream users. At this stage government decided to use the natural gas for production of fertilisers mainly in the western region near the gas resources. Three large fertiliser plants came up in Gujarat and Assam during 1967-1969. The gas available offshore of Western coast including Bombay High (started in late 1970s) was again, first utilised for the making of fertilisers. Five urea plants were commissioned at Rashtriya Chemical and Fertilisers (RCF Thal) and Krishak Bharati Cooperative Limited (KRIBHCO, Hazira) in 1984-85. This helped to reduce flaring of natural gas.
In the 1980s, various expert groups and committees recommended that the best use of natural gas was in the making of fertilisers. Besides it is well understood that fertilisers being a vital input for agriculture its prices should remain affordable to the farmers. Cost of production of urea using domestic gas is, at present, about Rs 10000-12000 per mt and will be affordable to the farmers even without subsidy. The cost of production of urea is high due to use of imported gas and liquid fuels and the government is providing large amounts of subsidy to regulate the prices of fertilisers at levels which can encourage their use.
The Hazira-Vijaipur-Jagdishpur (HVJ) pipeline was planned in order to locate fertiliser plants in areas of consumption. The pipeline, commissioned in 1987, saw the simultaneous sanctioning of six fertiliser plants, three of which were commissioned in 1987-88 while the other three spilled over to the early 1990s. Later, however, with indiscriminate allocation of gas and availability being less than estimates, shortage ensued in the late 1990s. In addition, Oil and Natural Gas Corporation Limited’s (ONGC) gas production started declining and rationing amongst existing consumers resulted in further shortage for the fertiliser plants till imported LNG was made available in 2005. Some relief was also provided by gas from public-private joint venture projects. Also, allocation from Krishna-Godavari basin (KG-D6), supply of which started in March 2009, filled the shortfall. But with consequent drastic reduction in production from KG-D6 fields the shortage of domestic gas continues. In view of this, there are often arguments against giving first priority to the fertiliser sector in the allocation of gas.
It is argued that fertilisers can be imported but power cannot. A few facts can clarify the position. India is the second largest consumer of fertilisers in the world, next to China. About 59 mt fertiliser products were used in 2011-12. Of this only about 16 mt were produced in the country using indigenous raw materials—domestic natural gas and indigenous rock. The balance, either raw material or finished products was imported. Imported raw materials include rock phosphate, sulphur, phosphoric acid, ammonia and LNG, while finished products include urea, diammonium phosphate (DAP), muriate of potash (MoP) and more. Thus India is heavily dependent on imports to the extent that almost 73 per cent of its requirement are met from outside. In such a situation, suppliers being few, India often finds itself facing cartelisation, pushing the procurement prices up further. It does not augur well for a country the size of India to have such a low level of self sufficiency, and it is definitely not desirable to increase our import dependence further.
Urea was the only product for which India had achieved self sufficiency in 2000-01. However today India imports 8 mt of urea out of its consumption of 30 mt in 2012-13 (Annual Review, 2012-13, Fertiliser Association of India). According to estimates available, fertiliser subsidy burden of the Indian government exceeded 1 lakh crore in 2012-13 (ibid.). Therefore, any increase in cost of fertiliser will increase the subsidy further and put extra burden on the exchequer. Alternatively, the prices will have to be raised which will affect the demand and consumption and in effect agricultural production.
Fertiliser plants are at present using a total of 46 MMSCMD of gas. Of this, domestic supply is 31 MMSCMD and balance is imported LNG. It is expected that shortage will increase due to dwindling supply of gas from existing fields of ONGC and KG-D6. Five fuel oil and one naphtha based plants have changed the feed from fuel oil and naphtha to natural gas in 2012-13 with combined investment of more than Rs 5000 crore under policy direction of the government. There is an immediate demand of additional 10-11 MMSCMD of gas in the industry to produce 23 mt of urea at full capacity.
The use of natural gas for production of fertilisers is justified for technical, economical and strategic reasons. If fertiliser production is allowed to fall from the present low level of self sufficiency, due to non availability of gas, fertiliser security and hence food security of the country will be compromised and no country of India’s size can maintain its sovereignty without its food security.