India naphtha exports to dip; local demand from urea rises

By Ajoy K Das

KOLKATA (ICIS)–India’s monthly naphtha exports may fall in the coming months as the restart of three major urea producers in the southern part of the country will boost domestic demand for the petrochemical feedstock, a government official said on Tuesday.

On average, the country exports about 450,000 tonnes of naphtha on a monthly basis since January this year.

Mangalore Chemicals and Fertilizers Ltd (MCFL) in Karnataka, Madras Fertilizers Limited and Southern Petrochemicals Industries Ltd (SPIC) in Tamil Nadu were allowed to resume production last week using naphtha as feedstock for production, the official from India’s Department of Fertilizers said.  

Their plants will require about 1.2m tonnes/year of naphtha to produce a combined 1.5m tonnes of urea, the official said, adding that no new deadline was set when the plants will have to switch to cheaper natural gas as feedstock for production.

The three fertilizer companies have yet to negotiate for long-term supply of feedstock naphtha and will have to secure cargoes from the domestic spot market, the official said.

They had to stop production in April this year after failing to meet the government’s deadline to switch to using natural gas feedstock. The initial deadline was set on 30 June 2014, but was extended to 15 April this year.

With no prospect of availability of natural gas supplies in southern provinces of Karnataka and Tamil Nadu, it would be futile for these three companies to make investments for feedstock switch, the official said.

India’s southern agriculture sector is dependent on these producers for urea supply, and the central government did not want to risk any further disruptions to production as the natural gas distribution pipeline has yet to be completed, the official said.

The 1,000-kilometre (km) Kochi-Bangalore-Mangalore gas pipeline proposed by gas logistics major GAIL India, that will connect LNG Petronet Ltd’s terminal in the southern Indian port town

Kochi to the industrial hinterlands of Tamil Nadu and Karnataka, has not made any headway amid strong opposition from various sectors.

India’s Cabinet Committee for Economic Affairs (CCEA) decided to make an exception for the three companies to continue using naphtha for urea production, the official said.

Elsewhere in India, other urea plants have switched to using natural gas as feedstock.

With the government also adopting a ‘pooled pricing regime’ for natural gas, the proposed pipeline would also have eliminated the high disparity in gas prices between user industries depending on their location, but the three urea companies would not be able to take advantage of it with the pipeline construction still hanging, the official said.

Based on 2014 estimates by the Department of Fertilizers, the production cost of the three major southern urea producers was pegged at rupees (Rs) 43,000/tonne with naphtha as feedstock compared with around Rs 18,000/tonne had they been using natural gas, and this meant higher subsidy for the government, the official said.

($1 = Rs63.66)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections