Recently the Supreme Court (October 24, 2017) banned the use of pet coke and furnace oil in the national capital region (NCR). The apex court also directed the Governments of Rajasthan, Haryana and Uttar Pradesh to notify the ban immediately, failing which its order will come into effect from November 1, 2017. The SC ban comes in response to the high levels of pollution in the NCR. While Delhi had banned the use of these fuels in 1996, their use continued in NCR by brick kilns, machining units, dyeing units etc. As per an ICRA, this ban in addition to controlling pollution levels will have notable impact on industrial users and providers of alternate fuels like natural gas over a period of time.
Throwing more light on the issue, Mr. K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA says, “As industrial units using pet coke and furnace oil would have to shift to alternate fuels such as natural gas and accordingly City gas distribution (CGD) entities operating in the NCR should see a significant increase in their PNG (industrial) volumes over the short to medium term. However the shift will happen over time as these units will have to incur investment to switch fuels. Additionally CGD entities would have to extend their pipeline networks as many areas are not yet covered and in areas which are covered last mile connectivity would have to be provided. Nevertheless several customers operating on dual fuel mode will be able to shift completely to gas immediately. Accordingly CGD entities with a wide network and substantial industrial presence in the GAs would be key beneficiaries of the ban.”
Pet coke has high levels of Sulphur (up to 7% when produced from high sulphur crudes) and metals such as Vanadium, Chromium etc. Furnace oil also has high levels of Sulphur (up to 4.5%). Burning of these fuels releases oxides of sulphur and nitrogen which form particulate matter and accordingly are a cause for serious environmental and public health concern. However these fuels are among the cheapest available to the industry and are widely used for heating and generating electricity.
From the consumers’ perspective, the ban on pet coke and furnace oil would entail shift to more expensive fuels such as natural gas. At current prices, use of furnace oil is cheaper by about 30% than natural gas on an energy equivalent basis and pet coke price is a fraction of natural gas. A shift to more expensive fuels might lead to some of the small players especially those using pet coke, shifting out of NCR due to their business becoming unviable. Nevertheless most furnace oil based customers are expected to switch to alternate fuels, which will lead to additional PNG (industrial) volumes to the CGD entities. However, the marketers of pet coke and FO, will be negatively impacted by this ban, although it will not have a material impact on their profits, as they constitute a small share of overall volumes.