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Questionable Economics of LNG-based Power Generation: Need for Rigorous Analysis

Author(s): Amol Phadke Publication Date: May, 2001

Paper by Amol Phadke, published in Economic and Political  Weekly Vol. XXXVI, No. 20, May 19, 2001.Though, coal-based generation continues to be the mainstay of power generation in India, a large-scale capacity addition based on oil and or gas has been preferred in the last decade. In this context, the paper compares LNG-based generation with its competing options, viz., domestic and imported coal-based generation and shows that, in most of the cases, coal-based generation is cheaper than LNG-based generation. For example, at the prevailing prices (viz., $ 28-30/bbl), the annual financial loss due to choice of a 2,000 MW LNG-based plant instead of a coal-based plant is in the range of Rs.1,000 to 1,800 crores. The paper concludes that, apart from the economic disadvantage of LNG-based generation, other factors like price stability, foreign exchange outgo, and risk of import dependence of strategic sector also cast serious doubts over the policy of large-scale shift to LNG-based power generation.

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