Amidst diammonium phosphate (DAP) shortages and a general lack of investment in manufacturing, one industry, urea, has actually seen significant new capacity on board, with the Narendra Modi government’s Progress is being made towards achieving the goal of atmanibharta (self-reliance).
Between 2011-12 and 2023-2024 (April-March), India’s domestic urea production increased from 22 million tonnes to 31.4 million tonnes (tonnes). Meanwhile, imports declined from 7.8 million tons to 7 million tons after peaking at more than 9.8 million tons in 2020. 21. So far this year, imports have fallen by a further 31.7% (Table 1) and could fall below 5 million tonnes, the lowest level since 4.7 million tonnes in 2006-2007. becomes.
green field project
The above production increase was mainly due to three companies, Hindustan Urvarak & Rasayan Ltd. (HURL), and the remaining companies Chambal Fertilizers & Chemicals and Matix Fertilizers & Chemicals. , through six new plants of Ramagundam Fertilizers and Chemicals Ltd. (RFCL).
The six plants in Chambal, RFCL and Matix projects will require an investment of Rs 6-7 billion each, while the HURL unit, built mainly in the post-COVID-19 period, will require an investment of Rs 8.1-8.6 billion. The project will collectively produce 7.55 million tonnes of urea in 2023 with an investment of Rs. 24 (Table 2).
These greenfield plants run on natural gas (mostly imported) and have an equivalent annual production capacity of 1.27 million tons. Three of them (Matix, Chambal and Khar Gorakhpur) were produced beyond their rated capacity in 2023-2024. It is also relatively energy efficient, requiring only about 5 gigacalories (GCal) of energy to produce one ton of urea, whereas early devices consume 5.5 to 6.5 GCal.
Additionally, the new plant will be located in the ‘green revolution’ region of eastern Uttar Pradesh, West Bengal, Bihar, Jharkhand and Telangana, including National Fertilizer Corporation’s (NFL) Bathinda, Nangal and Panipat plants. This is in contrast to the old factories responding to demand. Farmers in Punjab and Haryana.
“We have a 20% market share in eastern India.Besides being the only urea producer in West Bengal, we also supply urea to Bihar, Jharkhand, Orissa, Assam and Tripura. ,” said Nishant Kanodia, chairman of Matix Fertilizers. The company’s plant at Panagarh near Durgapur will produce 1.5m at 118% capacity utilization and consume 4.856GCal/tonne in 2023-24, making it the largest single unit and most energy efficient urea producer in the country. It became.
Additionally, a seventh 1.27 meter urea plant is coming up at Talcher (Angul district, Odisha) with an estimated cost of Rs 17,080.69 crore. Unlike the six gas-based units that produce ammonia with technology licensed from KBR (USA) or Haldor Topso (Denmark) and urea from Saipem (Italy) or Toyo Engineering (Japan), approximately 3 Talcher Fertilizer’s project, which is two-thirds complete, will use coal as a feedstock.
“The coal is from the Talcher mine.Due to its high ash content, it is prescribed to mix up to 25% with petroleum coke supplied from Indian Oil Corporation’s Paradip refinery. “The government is pushing this project because it is based on a technology (coal gasification) that is first-of-its-kind in India (although pet coke processes imported crude oil, but is a by-product of domestic refineries).” sources told The Indian Express.
The bulk turnkey contract for coal gasification and ammonia-urea packaging for the Talcher plant was signed with China’s Wuhuan Engineering Co., Ltd.
make or buy
The basic question regarding the new plant is whether the total investment of around Rs 61,575 crore, including Talcher, is worth it.
India’s landed price for imported urea is currently between $370 and $403 per tonne, based on the NFL’s previous tender. Meanwhile, natural gas is supplied to domestic urea plants at an average flat “pool” price of $14.35 per mmBtu (million British thermal units) in terms of gross calorific value, and a net price of $15.9 (1.108 times). It will be. Based on calorific value.
Assuming an energy consumption of 5 GCal/ton, or 0.25 GCal for every 1 mmBtu, the feedstock cost alone for the urea produced in the new plant would be $15.9/mmBtu, or $318 per ton. Add in the $175 fixed cost that the greenfield project is entitled to for eight years (which would likely cover all other costs including interest, depreciation, overhead, and profit), and the total comes to $493 per ton. Therefore, it is now cheaper to “buy” (import) urea than to “make” (produce) it at home.
However, the counter-argument to this argument is that the gas delivery cost of $15.9/mmBtu is only about $12.62 after customs duties and other taxes, which adds up to 26%. Offsetting these levies brings the feedstock cost of domestic urea down to $252, bringing the total down to $427 per tonne.
Additionally, imported bulk urea that arrives on a ship must be unloaded at a port before being bagged and transshipped for shipment to consumption centers. Moving this urea to the northern and eastern hinterland, farther from the ports than where the new plant is located, would incur additional costs of $30 to $35 per ton, including stevedoring, bagging, differential transportation, and interest. Masu. This further narrows the gap between “buying” and “creating”.
In addition to these, manufacturing in India also has the advantage of creating jobs and boosting overall economic activity compared to simply importing into India.
how much to make
With seven terminals and pipelines handling imported liquefied natural gas (LNG) crisscrossing much of the country, the economics of producing and purchasing urea have changed over the past decade.
LNG terminals and pipeline networks at Mundra, Dahej, Hazira (Gujarat), Davhol (Maharashtra), Kochi (Kerala), Ennore (Tamil Nadu) and Dhamra (Odisha) facilitate gas import and transportation. Now it’s easier. Urea to the hinterland. Importing urea has become more rational to supply western and southern markets closer to ports.
This allows for a different Atmanirbhar urea strategy, with more ‘production’ in northern and eastern India while exploring greater ‘buying’ options in peninsular India. This can be combined with shutting down some of the older, energy-inefficient plants and curbing urea consumption.
From 2011-12 to 2023-24, India’s urea consumption increased from 29.6 m to 35.8 m while DAP (10.2 m to 10.8 m) and compound fertilizers (10.4 m to 11.1 m) were less so. . The disproportionate increase in consumption is due to the farm price of urea being frozen at Rs 5,360 per tonne (without neem coating) since November 2012.
More reasonable pricing would encourage judicious application of urea by farmers and thus reduce unsustainable pressure on both the ‘manufacturing’ and ‘purchasing’ of this nitrogen fertilizer.
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