Ahmedabad: India’s biggest gas distributor, GAIL (India) Ltd, has signed a contract to buy and sell the entire quantity of gas produced at the Panna, Mukta and Tapti fields (PMT) off the country’s western coast, sparking fears about a supply shortfall in Gujarat as the state sources around 30% of its requirements from these fields.
GAIL has agreed to buy the entire 17.3 million cubic metres a day (mcmd) of natural gas from PMT, a joint venture run by Reliance Industries Ltd (RIL), Britain’s BG Group and state-run Oil and Natural Gas Corp. Ltd (ONGC), starting immediately.
Big deal: GAIL chairman and MD U.D. Choubey. The firm has also signed a term-sheet for 15 days with Gujarat State Petroleum to supply natural gas for its city gas and small industries distribution projects.
It will pay $5.73 (Rs229.40) per million British thermal unit (mBtu) for gas from the Panna field and $5.57 per mBtu for Tapti field supplies. An mBtu is a standard unit of measurement for natural gas.
The state-run company will then supply 3.6 mcm of PMT gas to RIL and a reduced 2.13 million cu. m to Gujarat Gas Co. Ltd (GGCL), a BG Group unit.
Gail has also signed a term-sheet for 15 days with Gujarat State Petroleum Corp. Ltd (GSPC)—run by the Gujarat government—to supply natural gas for its city gas and small industries distribution projects.
GSPC and GGCL distribute natural gas to a large customer base in Gujarat.
“But now there is no clarity about what is going to happen after 15 days,” said a senior state government official, who did not want to be identified.
Gujarat consumes about 39 mcm of natural gas per day, sourced chiefly from GSPC and GGCL.
PMT gas comprises more than 95% of the total volume sold by GGCL and nearly 33% of the volume sold by GSPC.
Already, supplies to the two companies have been reduced over time. GSPC used to receive about 3.8 mcm of natural gas a day from PMT, while GGCL got 3.05 mcm. Over time, this has been pared to 2.08 mcm for GSPC and now 2.13 for GGCL.
“Any reduction would have an adverse impact on state economy as it would stand to lose over Rs2 crore every day,” said D.J. Pandian, managing director, GSPC.
Though the Union ministry of petroleum and natural gas has asked GAIL to ensure supply to small industrial units and city gas distribution in Gujarat by allocating 1.1 mcm of natural gas per day, the company does not have a gas distribution network in the state.
The alternatives before GAIL are to either enter into contracts with more than 400 small units in the state or work jointly with GSPC and GGCL to continue supplying gas, the state government official said. “We are open to working with GAIL for gas distribution if it helps the industry in the state.”
GAIL officials said it was premature to comment on the issue at this stage and that the company would evolve a system for further supplies after the 15-day period.
Many power and fertilizer companies along GAIL’s Hazira-Bijapur-Jagdishpur (HBJ) pipeline enjoy subsidies from the Union government. These companies used to buy a portion of their gas requirements from GAIL at $3.8-5.7 per mBtu equivalent, but had to close their additional requirement with gas from the PMT joint venture at around $9 per mBtu.
Once GAIL starts marketing PMT gas, these fertilizer and power companies will get natural gas at a relatively cheaper price, reducing both their production cost and the subsidy burden of the government.
However, the other companies in Gujarat would have to pay $16-18 per mBtu for liquefied natural gas, significantly higher than the contracted maximum price of $5.7 per mBtu that they paid earlier.