Price fluctuations in natural gas not to affect urea prices

As per the new foreign trade policy announced last month, the government stabilises the prices of natural gas and imported Liquefied Natural Gas (LNG) used by the domestic fertilizer plants.

The Dollar Business Bureau Urea-and-Agri-The-Dollar-Business Fluctuations in the price of natural gas might affect urea production subsidy provided by the government, but it will not have any bearing on the price of urea. However, the rise in price of natural gas will increase the subsidy burden on the exchequer as there is a direct impact of rise in gas price on the prices of fertilizers since increase in the price of gas by Rs.1.00 per MMBTU results in the increase of the cost of production of urea by Rs. 25.99 (6.499x4= 25.99) (The weighted average energy norm for all 27 gas based urea units in the country is 6.499 Gcal/MT and 1 Gcal = 3.96 MMBTU~ 4MMBTU). Therefore, the additional liability of subsidy towards domestic urea would be Rs.25.99/MT of urea approximately. The above information was given by Minister of State for Chemicals and Fertilizers, Hansraj Gangaram Ahir in reply to a question in the Lok Sabha on April 28, 2015, said a PIB release. Out of the total consumption of 30 million tonnes per annum (MMTPA), 23 MMTPA is produced in India and 2 MMTPA is imported from Oman under the Urea Off-Take Agreement. The balance requirement of up to 5 MMTPA is met through imports. As per the new foreign trade policy announced last month, the government stabilises the prices of natural gas and imported Liquefied Natural Gas (LNG) used by the domestic fertilizer plants. Under this policy, the government supplies gas at uniform delivered price to the fertilizer plants on the gas grid for the production of urea under a pooling mechanism. The move is aimed at bringing the cost of urea production less than the price of imported urea. Of the total 30 fertilizer units in India, 27 are gas-based and 3 units – Mangalore Chemicals & Fertilizers Limited (MCFL), Madras Fertilizers Limited (MFL) and Southern Petrochemicals Industries Limited (SPIC) — are Naphtha-based. Urea demand for the year 2016-17 is projected at 34 MMTPA and by 2017-18, it is expected to reach 38 MMTPA.