Reliance Industries Limited (RIL) may finally get to use the gas it produces.
The government is likely to alter the Gas Utilisation Policy to allow the company to use some of the gas that will start flowing from its D-6 block in the Krishna-Godavari (KG) basin weeks from now.
Under the Gas Utilisation Policy, RIL can’t use its own gas. This could now change as the empowered group of ministers (EGoM), meeting this week, may consider allocating some gas for RIL’s captive use.
The group is empowered to take a decision on issues related to gas pricing and its utilisation. RIL is expected to use the natural gas for its captive power projects, apart from other industrial uses.
Allowing RIL to use some of its gas could set the precedent for other gas producers in future as well. The company’s initial gas production will be 10mmscmd increasing to 40mmscmd going ahead. In the second phase of the field’s development, peak production is scheduled to go up to 80mmscmd.
While the EGoM has listed top-priority customers for distribution of first 40mmscmd gas, there is a case for allowing contractor (RIL) to use some of it in the second phase.
The government’s new licensing policy for exploration blocks gives oil companies freedom to market oil and gas and sell it at market price.
However, the government interfered with the contractor’s (RIL) marketing freedom, and specified priority sectors for the supply of the gas due to the unprecedented demand and short supply of natural gas in the country.
RIL recently abandoned a plan to put up a power plant based on its KG basin gas because it had been kept out of the list of initial customers. The company ended up cancelling orders for boilers and turbines. This is positive for RIL.
We maintain a BUY on the stock, with a target price of Rs1,440. This development is also expected to benefit GSPL, as it will be transmitting this volume for RIL’s captive use.