Gas allocation policy to focus on fertilisers

The government's much-debated draft gas allocation policy, which will prioritise gas supply to various industries, will be ready in the next couple of weeks.

"The power and fertiliser sectors will continue to be the priority industries, with greater focus on the fertiliser sector. However, the policy is unlikely to mandate gas allocation for sectors in definite percentage terms," said a senior official in the petroleum ministry.

The policy has given rise to a debate about the sanctity of the New Exploration and Licensing Policy (Nelp), under which oil and gas producers are free to market their gas to any sector.

Companies that distribute fuel to households and vehicles in cities are willing to pay higher prices as their margins are big, said an industry official.

Power and fertiliser plants, on the other hand, say that the gas price of over $5 per million British thermal unit (mBtu) makes production unfeasible.

The policy also comes just five months after the Petroleum and Natural Gas Regulatory Board (PNGRB) was notified. One of the regulator's mandates is to ensure competitiveness in the market.

"The regulator's job keeps getting increasingly undermined. It would become very difficult to ensure competition and free market in the face of a policy which mandates distribution to specific sectors," a consultant who tracks the sector said.

He added that the gas allocation policy also brought into question marketing freedom given under the Nelp regime.

"Saying that gas producers must supply the maximum amount of gas to the power and fertiliser sectors goes against the spirit of Nelp licences, which give marketing freedom," said an official of an oil and gas company.

Gas production from the country's domestic fields is expected to more than double over the next couple of years, once production from Reliance Industries' D6 block in the Krishna-Godavari basin begins. Production from other basins, such as Mahanadi in Orissa and Cauvery in Tamil Nadu, is also expected to begin by 2011.

A senior petroleum ministry official said it was important to reduce operating costs in the power and fertiliser sectors by facilitating change of fuels from the more expensive naphtha to cheaper domestic gas.

"Also, the volumes required for, say, city gas distribution are very small. The policy will address these questions," the official said.

For a city like Delhi, 2 million cubic metres per day (mcmd) of gas is required for supply to kitchens and vehicles. "Even all of that is not fully used," the official added.

It is estimated that around 15 mcmd of gas will be required for distribution to nearly 250 cities, an industry official said.