The Government has asked Reliance Industries Ltd to sell natural gas from its eastern offshore KG-D6 fields to steel firms like Essar and Ispat to help the country's most prolific gas field to produce at an optimum level.
The Ministry of Petroleum and Natural Gas yesterday issued orders directing Reliance to sell 3.75 million standard cubic metres of gas per day to Essar Steel, Ispat Steel and Vikram Ispat, a top official said.
"We had identified sectors that would consume the initial 40 mmcmd output from KG-D6. But some of them like CNG supply projects in cities are unable to take their entire allocation and that is now being reallocated to steel firms," he said.
Essar will get 2.86 mmcmd, Ispat 0.53 mmcmd and Vikram Ispat the remaining 0.36 mmcmd.
Reliance is currently restricting output from KG-D6 to just 28 mmcmd as not all of the power and fertiliser customers identified by the Government are taking their full quota of allocation.
The official said after power and fertiliser, 5 mmcmd gas from KG-D6 was allocated for city gas projects but only 1.1 mmcmd can immediately be taken. The rest is now being distributed among steel firms.
The allocation will boost the profitability of steel firms, which had been buying expensive LNG or naphtha to meet feedstock shortage at their plants.
The official said the allocation has been made in accordance with the Empowered Group of Ministers' decision of April 9 to give unutilised KG-D6 gas to steel plants that are currently not being supplied their full share of fuel that is sold at administered prices.
Currently, Reliance can produce close to 40 mmcmd but is restricting output to 28 mmcmd in the absence of buyers. Of the 14.97 mmcmd allocated to the fertiliser sector, only 13 mmcmd is being supplied because some urea-making plants are shut down.
Of the 17.99 mmcmd earmarked for power, only 15 mmcmd is being sold while two big customers NTPC and Dabhol are yet to begin drawing the fuel.
After gas-based steel plants, allocations would also be made to existing gas-fired power plants and to other power plants, including captive plants, depending upon the availability of the unutilised gas, he said.
Essar Steel's Hazira plant in Gujarat was allocated 3.11 million cubic metres of gas per day from Oil and Natural Gas Corp (ONGC) fields, sold at regulated rates of around $2 per million British thermal units. But it currently gets only 0.66 mmcmd due to the declining output of regulated gas.
Sources said plants like Hazira would get gas that fertiliser, power, LPG extraction plants or city gas projects, which have been given priority of usage of KG-D6 gas in that order, are unable to use.
About 15 mmcmd has been given to urea-making plants, 18 mmcmd to gas-based power plants, three mmcmd to GAIL's LPG extraction units and five mmcmd to city gas projects for retailing CNG to automobiles and piped cooking gas to households.
Of the allocation for the power sector, Ratnagiri Gas and Power is unable to immediately take its allocated 2.7 mmcmd due to outages at Dabhol plant equipment.
Similarly, most of the gas earmarked for city projects would go unutilised as none of the current operators is connected to pipelines carrying KG-D6 gas, the official said.
Reliance is currently producing gas of about 28 mmcmd from the KG-D6 field that came into operation on April 2. Output is expected to rise to 80 mmcmd by the year end.
It has already signed gas sales agreements with 12 fertiliser companies for supplying 14.97 mmcmd gas from KG-D6 at the Government-approved rate of $4.20 per mmBtu. Agreements with most of the power plants have also been inked.
