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July 11, 2020

Winter crops likely to face urea shortage on RLNG tariff issue


July 11, 2020

LAHORE: Winter crops are feared to face urea shortage as two fertiliser plants with 0.7 million tons of production capacity falter due to unavailability of re-gasified liquefied natural gas (RLNG) on competitive tariffs even in summer when gas demand is low, industry representatives said on Friday.

Running local plants for urea manufacturing is the only viable option as imports have become infeasible on the back of rupee devaluation, they said.

“It is pity that indecisiveness on the part of federal government and later offering a high LNG tariff last week led to fertiliser plants’ closure in summer months,” an industry official said.

The officials recalled that all fertiliser plants were used to be supplied with abundant gas in any case amid seasonally lean summer demand.

The LNG tariff has already been low due to free fall in international crude prices in the recent past, necessitating low subsidy from the government while energy demand is also at the lowest ebb due to Covid-19 impact.

Though there is an excess production of urea at the mid of calendar year, as per industry estimates, low inventory towards second half of rabi season could become a serious issue.

Two fertiliser plants have remained closed due to suspension of RLNG supply for nine months now. Agricteh and Fatima were closed because of unavailability of local gas, while imported gas was costly and economically not viable for them.

As per demand-supply outlook for current year, 5.7 to 5.8 million tons urea is expected to be produced from Mari-Sui plants against the demand of 6.1 to 6.2 million tons, creating a gap of 400,000 to 500,000 tons. The bulk of gap is stated to be felt in in the later part of winter crops.

The bureaucratic delays and vagueness on the part of policymakers have been blamed for no RLNG supplies to fertiliser plants back in late April. Despite the fact that lowest LNG prices, which were even less than the locally produced gas, needed minimal subsidy, the managers sitting in federal capital failed to take timely decisions to run plants.

Summer months have been considered a best time to have excess production in hand to meet high demand of winter months when gas also becomes scarce due to high demand from domestic consumers.

In 2019, these two RLNG-run plants produced 780,000 tons of urea with full-year operation, thereby saving foreign exchange of more than $230 million. Owing to running the plants throughout last year, demand and supply gap was bridged successfully.

Total urea demand touched the 6.29 million tons mark last year while fertiliser units on locally produced gas contributed 5.4 million tons and remaining gap was picked up by RLNG-based plants.

“There is a division in the fertiliser industry on running RLNG-dependent urea manufacturing,” said an insider. “Some circles are claiming that present glut like situation warrants RLNG-based plants should be shut.”

Others said versupply is due to delayed announcement of subsidy package for farmers.

Urea prices have already come down Rs400 per bag versus last year and crops of wheat, rice and cotton have strong urea demand. “So policymaking should not be based on one to two months of low demand,” said an expert. “One good month of about one million ton offtake will change entire equation.”