India's coal ministry is seeking to substitute imported coal with domestic supply to keep power plants interested in more supplies. Last week, oil trading firms IOCL and Mangalore Refineries and Petrochemicals exercised force majeure with suppliers from Saudi Arabia and the UAE in order to avoid the need for additional supplies of crude oil.
Oversupply of fuel has become a major concern for the Indian economy, with energy demand plummeting across the board as a result of the Covid-19 lockdown.
However, the shape of the problem is not uniform. Demand for LPG, for example, was boosted after the government promised free refueling of cylinders for at least three months to all those receiving subsidized supplies.
Coal supply:
Anil Jain, Secretary of the Ministry of Coal, is therefore looking for alternatives. "I am trying to encourage port-based coal-fired power plants to reduce their imports," he said to Business Standard. India imported about 20 per cent of its total coal requirement in 2019-20, a shade lower than that of 24 per cent in the previous year.
Jain wants to slash these imports by replacing them with domestic gas. For years , the government had hoped that this would happen, but now, with overproduction by both CIL and Singareni Collieries Company Limited (SCCL), it could finally do so. Substitution will not include coking coal used to fire steel furnaces, since there is no domestic spare capacity to offer, but it is possible otherwise. His ministry hopes that, given that supplies are not a problem and that domestic coal is far cheaper than imported coal, coastal power plants will switch.
In the meantime, Jain has written to the Secretary of State, Sanjiv Nandan Sahai, asking the power stations not to push back supplies from CIL. India's thermal power plants, with an installed capacity of 231 Gw, have always struggled with inadequate supply of coal to keep them working. That was turned upside down in April of this year. Their backyards are increasingly filling up with coal, as freight trains from CIL and SCCL arrive all too frequently, even as demand for generation has plummeted. Until 18 April, according to data from the Central Electricity Authority, there was a cumulative 8.06 per cent gap between what these plants could produce and what they ended up supplying.
Nonetheless, experts in the energy sector are not confident whether this pattern will continue. "Given that the rabi crop has been harvested and that summer is set, it is economically efficient to optimize shipment from storage to a minimum requirement for drinking water and other essential purposes, given the low demand for electricity," said Gaurav Bhatiani, Director of Energy and Environment at the Global Think Tank, RTI International India.
The data for the generation of hydropower plants underpins his claim. While there was a negative gap in thermal production, there was an increase in hydropower production. Although thermal power plants were idle, in April, hydropower was 14 per cent higher than expected in the same 18-day period.
Bhatiani says that tamping down on hydro output "would also help to mitigate the question of coal storage in some plants and parts of the world."
The coal secretary is also upset that the power plants have used this opportunity to demand a lower price for coal. “It is not related to the issue of storage, why have they brought it up now,” he says.
Crude supply:
Just when oil distribution firms are dealing with common problems of oversupply, there are still shortage issues. IOCL reduced its crude processing by 30-40 per cent and shut down its naphtha cracker plant due to falling demand. In its letter to the suppliers, it made the disclosures invoking its force majeure. The IOC accounts for around one-third of the country's refining capacity of 5 million barrels per day (mbd).
BPCL and HPCL are the other major producers. But it has implications. The same process of refining that produces gasoline and diesel also produces LPG, a cooking fuel whose demand has increased. Some 15.1 million free LPG cylinders have been distributed under Pradhan Mantri Garib Kalyan Yojana so far this month. The Government has promised to free up three cylinders to 80 million eight crore people who are eligible for this free supply. The total number of LPG customers in India is around 27.9 crore. Daily demand for refills increased to 53.6 lakh after the scheme was revealed as one of the steps to help people post the lockdown. That is one of the main reasons why businesses can not slash production any further in order to save their balance sheets.
Yet even this cut means that IOCL, BPCL and HPCL have to buy LPG from abroad to make up for the slack in their refineries. Although no company was willing to make a quote in response to the mails sent by Business Standard, it is understood that demand for LPG supply from West Asia has increased by 60%. Total imports of LPG increased from 264 mbd in 2014 to 464 mbd in 2019, with a cumulative growth rate of 14 per cent as reported by the Ministry of Petroleum, as domestic production did not keep pace with demand. The current increase in demand will increase these numbers in 2020-21. India is now the third largest importer after the USA and China, as demand for cooking gas has risen in recent years, with the government reaching out to the poor through Prime Minister Ujjwala Yojana.
But despite low production, India 's oil storage capacity is running out. India 's strategic storage capacity is only 5.33 million tons built in Visakhapatnam, Mangalore and Padur. It's just over half full now, says S&P Platts. Compared with China's total capacity of 550 million barrels, Japan's SPR of 528 million barrels and South Korea of 214 million barrels, India can store only 39 million barrels. The current amount of imports will soon increase.
There is not much additional potential with the companies in production. For example, IOCL has a capacity of 125 bulk storage terminals and depots and 91 LPG bottling plants. But the Bloomberg report states that 95 per cent of the approximately 85 million barrels of fuel storage capacity in the three major companies is already complete. They also sell their cargoes on the high seas with a minimum lead time. Most of them are close to their capacity in April. Certain alternatives are pipelines, but India has no transcontinental lines and, in any case , due to trace microbial activities, they are difficult to maintain without expensive supervision. As the Platts data show, India will report a negative rise in its oil demand by 2020 , which means that the sector will have a big headache in balancing its limited storage capacity. capacity.
