Why urea production in India is under threat
What's the story
India's urea production has been severely affected by disruptions in liquefied natural gas (LNG) supplies. The situation stems from force majeure declarations that have impacted deliveries, resulting in gas curtailments for fertilizer units. This is leading to increased energy consumption and higher production costs. The disruptions could potentially affect fertilizer availability for the upcoming kharif sowing season.
Supply disruption
Petronet LNG's force majeure declaration
Petronet LNG Ltd, which runs India's biggest LNG terminal, has declared force majeure after upstream suppliers said they couldn't deliver contracted volumes due to disruptions in cargoes passing through the Strait of Hormuz. The declaration has led to supply cuts by state-owned gas distributors GAIL (India) Ltd, Indian Oil Corporation Ltd (IOC), and Bharat Petroleum Corporation Ltd (BPCL). These companies provide gas under RasGas contracts to fertilizer units across India.
Impact on production
Gas supplies curtailed to around 60-65%
A senior industry official told PTI that gas supplies have been curtailed to around 60-65% of normal levels. When scheduled plant turnarounds over the last six months are taken into account, effective supply at some units has dropped below 50%. This has resulted in a nearly 50% drop in urea output at affected plants.
Operational challenges
Increased energy consumption and financial hit
The situation has also led to an increase in energy consumption at these facilities by up to 40%. This is because large ammonia-urea trains operating at reduced loads see a sharp drop in thermal efficiency. A plant operations manager said, "Operating under these conditions means you are burning more energy to produce less fertilizer, and that is a direct financial hit."
Operational stress
Coordination issues and risks
The disruption has also exposed coordination issues, with gas consumption mandates sometimes being communicated to fertilizer units late at night. This leaves plant managers scrambling to make abrupt load adjustments. An industry source said, "Sudden load variations of this nature are not practically feasible for large train-based ammonia-urea plants." They risk equipment failures, plant tripping and safety risks to operating personnel.
Financial pressure
Pricing uncertainties for producers
The disruption has also affected pricing, with GAIL informing fertilizer companies that long-term RLNG quantities would now be billed at multiple price benchmarks. These include contract price, GAIL pooled price and Gazette pooled price. Industry sources said the pooled price is provisional and subject to retrospective adjustments under government guidelines. This adds a layer of financial uncertainty for producers already grappling with reduced output and higher operating costs.