City distributors likely to get priority over power firms

Fertiliser will have first right, followed by LPG and CGD, to natural gas produced from blocks awarded under NELP regime

The government is likely to change policy for allocation of natural gas supplied from auctioned blocks by placing the gas-starved power sector after city gas in priority.

Through a policy notification earlier this month, it had ensured the demand for city gas distribution (CGD) networks is met entirely from cheaper domestic gas from blocks allotted outside the New Exploration Licensing Policy (Nelp) regime.

With this, fertiliser will have the first right, followed by liquid petroleum gas (LPG) and CGD, to natural gas produced from blocks awarded under Nelp, including Reliance Industries Ltd’s KG-D6 block.

“There is no immediate shortage in providing extra allocation required for the CGD networks. However, we want to ensure there is no such problem in future. So, we might move a note for clearance of an empowered group of ministers soon, giving city gas priority after fertilisers,” said a senior petroleum ministry official.

Allotment to the fertiliser sector is currently capped at about 31 million standard cubic metres a day (mscmd), while that of power stands at 25 mscmd. The move might hurt 9,000 Mw of power projects across the country that are under construction. India’s natural gas production has steadily declined over the past two years to 111 mscmd in FY13 from 143 mscmd in FY11, owing to a fall in production of the KG-D6 block. This is expected to be in the range of 130 mscmd by the next financial year.

The government decided to raise allocation of natural gas from domestic fields to city gas entities to 100 per cent from 80 per cent early this month.

“From 5.7 mscmd, 100 per cent allocation increased the city gas entity share to 8.3 mscmd. Based on the current requirement for the transport sector, we may not need to notify it,” said the official.

According to ministry sources, even if compressed natural gas (CNG) networks are operational across 300 cities in the country, the overall allotment required would be around 25 mscmd only.

“With an incremental 30 mscmd production set to be added in the domestic natural gas pool, this will not be an issue. But we want to ensure that it gets first priority. The average requirement for city entities would be in the range of 0.2 mscmd only,” he added.

The cut in allotment might hurt non-priority sectors such as steel, refinery and petrochemicals — with companies like RIL, Essar, GAIL and Welspun feeling the pinch. The increase in allocation had led to a cut in CNG prices by Rs 15 a kg across the country.

However, CNG prices might increase by Rs 5-8 a million British thermal units (mBtu), with an increase in domestic natural gas prices from April 2014 from $4.2 an mBtu to $8.2 an mBtu.