Fertilizer Secretary Indrajit Pal last week wrote to his counterpart in the Petroleum Ministry seeking raising domestic gas allocation to urea sector from 31.5 million standard cubic meters per day to 46 mmscmd.

As the allocation from domestic fields falls short of requirement, urea manufacturing units are using imported liquefied natural gas (LNG) which costs nearly three times the delivered price of about USD 6.5 per million British thermal unit of domestic gas, sources in the Fertilizer Ministry said.

Using one mmscmd of imported LNG, whose delivered price at user plant is about USD 20, for 330 days leads to extra subsidy of Rs 1,060.20 crore per annum.     Pal said since the cost of gas used by urea units is passed through under the New Pricing Scheme (NPS) Stage-III, using imported LNG leads to over Rs 15,000 crore per annum subsidy payout by the government.

This could be saved if domestic allocation is increased, sources said adding the Department of Fertilizer wants urea plants to be supplied 46 mmscmd of gas instead of current 31.5 mmscmd from domestic fields.

According to oil regulator PNGRB, the fertilizer sector demand is likely to double by 2016-17.

If accepted, increase in gas allocation will benefit companies like Rashtriya Chemicals and Fertilizers (RCF) and National Fertilizer Ltd (NFL).

An Empowered Group of Ministers (EGoM) had on August 23 last year decided to cap supply of domestic gas to the fertlizer sector at 31.5 mmscmd. Any additional gas production from NELP blocks up to 2015-16, after meeting 31.5 mmscmd of fertilizer requirement, was to be supplied to the power sector.

Pal told Oil Secretary Saurabh Chandra that the requirement of urea units is way above the 31.5 mmscmd cap imposed. Urea units are facing shortfall of about 15.5 mmscmd and have to necessarily rely on high prices LNG, resulting in high cost of production of urea.

The New Pricing Scheme (NPS) Stage-III for urea units, approved in February 2007, seeks to promote usage of natural gas for production of urea as it is most efficient and comparatively cheaper feedstock.

It provided for a definite time schedule for conversion of all non-gas based urea units to gas.

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