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Reliance Industries, GAIL in race for gas supply to Karnataka project

Reliance Industries, GAIL in race for gas supply to Karnataka project
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First Published: Thu, Jan 24 2008. 11 23 PM IST

Pricing issues: With sharp volatility in crude prices having affected gas prices not only for long-term supply contracts but also in the spot market, analysts believe KPCL will not get its gas cheap.
Pricing issues: With sharp volatility in crude prices having affected gas prices not only for long-term supply contracts but also in the spot market, analysts believe KPCL will not get its gas cheap.
Updated: Thu, Jan 24 2008. 11 23 PM IST
New Delhi: India’s leading natural gas suppliers, Reliance Industries Ltd (RIL) and GAIL (India) Ltd, are in the race for supplying about 8 million standard cubic metres per day (mscmd) of gas to Karnataka Power Corp. Ltd’s (KPCL) 1,400MW power project at Bidadi.
The two firms have submitted technical bids to the state-owned power generation firm for the combined cycle power plant coming up in the outskirts of Bangalore at an estimated investment of Rs5,600 crore. Once commissioned, the project is expected to add nearly one fifth to the state’s existing power generation capacity of 6,000MW.
“RIL has indicated that it would bring the gas from its fields in the Krishna Godavari (KG) basin. Even GAIL plans to lay a Rs2,500 crore gas pipeline from Dabhol in Maharashtra to Bangalore, a distance of 730km, designed to carry 16 mscmd of gas,” said a KPCL official who did not wish to be identified as he is not authorized to speak to the media.
Pricing issues: With sharp volatility in crude prices having affected gas prices not only for long-term supply contracts but also in the spot market, analysts believe KPCL will not get its gas cheap.
RIL’s spokesperson could not be reached for comment, but a senior GAIL executive confirmed the development on condition of anonymity.
While RIL has access to its own gas fields, GAIL has been scouting overseas for securing long-term supplies of gas. Its efforts are yet to yield results. Sharp volatility in crude prices has affected gas prices not only for long-term supply contracts, but also in the spot market.
Analysts believe KPCL will not get its gas cheap.
“The gas may not be priced at $4.2 per million British thermal units (mBtu) from the KG gas find. The gas pricing will be a tough part. GAIL’s gas will come from the Panna Mukta Tapti (PMT) field and its availability is expected to increase,” said Prayesh Jain, an analyst at stock market research firm India Infoline.
The Bidadi project was initiated in 1999 by KPCL as a joint venture with Unocal for a 200MW gas-based plant. The venture fell through in 2002. KPCL decided to set up the project on its own in 2004 and increased its size to 1,400MW at a time when natural gas prices were at a historical low. Since then, it has not been able to tie up gas supplies.
“Since then, gas prices have increased in the international market and KPCL has not been successful in signing a contract for the gas supply for its project. Once the technical bids are complete, we will call for price bids by March. Orders for the plants and financial closure is all linked to firming up the supply of gas,” the KPCL official said.
Industries such as power and fertilizer face a chronic shortage of gas. While LNG (liquified natural gas) prices are around $21 per mBtu in the spot markets, there is none to be had through long-term supply contracts till 2010.
The petroleum and natural gas ministry estimates that the country will need around 180mscmd of LNG in 2007-08. It expects supply to be around 81mscmd and projects that the fuel shortage will persist till 2012.
It will take three years for the Bidadi plant to generate power, once a supplier is finalized and a pipeline to deliver gas for the project is laid.
KPCL generates nearly 5,000MW, the bulk of it from hydel plants in Karnataka. About 1,000 MW is generated by independent power producers in the state.
raghu.k@livemint.com
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First Published: Thu, Jan 24 2008. 11 23 PM IST