In 2011 from 1st January till October 31st, fertiliser plants on the SNGPL network received equivalent of only 3.5 days of gas per week relative to other sectors who received 4 to 5 days of gas a week. It is important to note here that gas is used by the fertilizer industry as a raw material without which plants cannot manufacture urea, whereas for other sectors it is used as a cheaper fuel, which has other alternative sources available.
According to a report prepared by International Resources Group for Asian Development Bank and Ministry of Planning and Development Government of Pakistan. "The System Level Economic Valuation indicates that reducing gas to the fertilizer sector costs the economy Rs 196 million per mmscfd, while increasing gas to the power sector costs the economy Rs 98 million per mmscfd," says the report.
Thus, using natural gas for fertilizer sector has a higher saving relative to using it for power generation by Rs 23 billion. This compares well with the value from the economic model, which for use of 100 mmscfd in the fertilizer sector gives a net benefit of Rs 19.6 billion.
In a fertilizer plant, 100 MMCFD of gas can yield 1.43 Mt/yr of fertilizer with 75% of the gas being feedstock and 25% being fuel for the process. The value of the fertilizer in the domestic market (price to the farmer) is Rs 22.3 billion. The alternative for the farmer is imported fertilizer priced at Rs 37,200 ($430) per ton including transport and distribution costs, which is a total cost of Rs 51.7 billion. The savings from domestic fertilizer production versus imports, is the difference, which is Rs 29.4 billion.
In a 220 MW thermal power plant, 100 MMCFD of gas generates 11.1 GWh of electricity, which has a fuel cost of Rs 3.5 billion based on natural gas priced at Rs 394 per million Btu. A 220 MW thermal power plant requires 0.22 million tons of heavy fuel oil priced to generate the same amount of electricity. At Rs 44,680 per ton, the fuel oil plant has a fuel cost of Rs 9.9 billion. The savings from using domestic natural gas rather imported heavy fuel oil is the difference, which is Rs 6.4 billion.
Gas has a higher economic value for fertilizer production compared to power sector. The System Level Economic Valuation indicates that reducing gas to the fertilizer sector costs the economy Rs 196 million per MMCFD, while increasing gas to the power sector costs the economy Rs 98 million per MMCFD.
The Plant Level Comparison shows that using 100 MMCFD for fertilizer saves Rs 29.4 billion compared to fertilizer imports, while replacing 100 MMCFD for power saves Rs 6.4 billion compared to heavy fuel oil imports. The report observes that gas diverted from fertilizer plants is partly used to increase power generation in the existing plants, both utility and captive power, and is partly conserved for future use.
The government in order to avoid a urea crisis such as 2011's should acknowledge that the only solution is to provide gas to all fertilizer plants in the industry. The other industries can import furnace oil, which will be much more economical than importing urea. Otherwise sowing and harvesting targets will not be met and food inflation could arise.