KOLKATA (miningweekly.com) – Indian demand for imported liquefied natural gas (LNG) is expected to dip sharply after the government pulled the plug on a scheme supplying subsidised natural gas to power generating plants.

Halting the supply of subsidised LNG is expected to shave off at least two-million tons from 22-million tons a year of natural gas currently imported into the country.

In 2015/16, the government framed a scheme to provide completed power plant projects left stranded by lack of fuel with subsidised imports, which bailed out an aggregate 24 000 MW of power generating capacity.

The subsidy was funded through a special power system development fund. However, despite several representations from power companies, the government last month announced that the scheme would be discontinued with effect from April 1.

The final nail in the coffin of the scheme was the reluctance of provincial governments to continue to offer discounts and exemptions on local level taxes levied on imported fuel.

“India’s gas-fired power plants need a long-term solution to their problem of fuel scarcity,” Power Minister Piyush Goyal said recently, indirectly hinting to government’s reluctance to continue to offer a subsidy as a solution to fuel stranded power stations.

Government data has revealed that Indian imports of LNG spurted 15% during 2015/16 to 17-million tons, following the introduction of the subsidy.

However, a section of government officials in the Petroleum and Natural Gas Ministry maintained that the loss in demand from power companies was not a matter of concern, as it would be more than offset by rising demand from other sectors, like petrochemicals and fertilisers.

In fact, the officials said that despite withdrawal of subsidised supplies, India continued to be well placed to achieve the target of increasing the share of natural gas in country’s total energy basket to 15%, from 6.5% at present, over the next five years.

Elaborating on demand projections, the officials said that the loss of demand of two-million tons a year from power companies would be more than offset by an expected additional seven-million tons a year of natural gas demand from fertiliser companies, which were planning to increase their urea production by an estimated four-million tons a year over the next four years.