New Delhi: Faced with falling output from Reliance Industries’ KG-D6 fields, the government is mulling withdrawing natural gas allocation made to non-priority users like Essar Steel and giving them fuel only on fall-back basis.
Non-core sponge iron plants, petrochemicals units and oil refineries have cornered as much as 13.13 million cubic meters per day out of the 60.76 mmscmd of KG-D6 gas allocated.
With production dipping to around 50 mmscmd, a worried oil ministry wants the fuel to first go to core sectors -- fertilizer, power, LPG extraction and city gas distribution, sources in know of the development said.
Any gas left after supplying priority sector is to be sold to non-core users proportionately.
But Reliance has refused to follow the dictat and has continued to follow the July 2010 policy of pro-rata or proportionate cuts in supplies to all consumers including urea making plants and electricity generation units, they said.
With production almost equalling quota allocated to core sectors, the Mukesh Ambani-run firms says it cannot stop supplies to any customer unless the government indemnifies it against any legal and financial damages arising from such action.
As a way out, the ministry is now mulling converting the 13.13 mmscmd of firm allocations made to steel, petrochemical and refinery sector into fall-back or temporary, which Reliance will be bound to supply only if there is enough gas.
Sources said since all the allocations of natural gas were made by the government, it has the powers to change the quotas to meet priority of the day.
Reliance has so far signed up customers for 60.76 mmscmd of gas while production from its eastern offshore KG-D6 fields in the week ending 3 April was about 49 mmscmd.
Output is lower than 61.5 mmscmd output achieved in March 2010. Sources said the ministry wants neither fertilizer production nor generation of electricity during peak summer months to suffer because of fall in KG-D6 gas output.
The government had accorded highest priority to urea plants followed by LPG extraction units, power plants and city gas distribution projects while allocating KG-D6 gas.
Sixteen fertilizer plants have been allocated 15.35 mmscmd of KG-D6 gas on firm or permanent basis while 27 power plants in public and private sector have got 29 mmscmd.
A sizeable 7.79 mmscmd of gas has been signed up with steel producers while LPG plants have been allotted 2.59 mmscmd.
Refineries including that of Reliance have been given 3.46 mmscmd, city gas projects 0.65 mmscmd and petrochemical plants the balance 1.92 mmscmd.
The priority sector allocation totals 47.59 mmscmd, leaving almost very little for steel plants, refineries and petrochemical units from current production, they said.
Sources said the fall in production of gas from KG-D6 fields has meant rise in government subsidy outgo as the shortfall in cheaper feedstock in fertilizer plants is now being replaced by costlier liquid fuels.
Also, less gas to power plants has resulted in lower electricity generation.
Reliance has been asked not to cut any of the committed quantities to the priority sector but in case the production falls further, the company may impose pro-rata cuts in the following order for priority: City Gas Distribution (domestic and transport), power, LPG and fertilizer sector.
Sources said Reliance has signed a stringent ship-or-pay contracts with all its customers, wherein it has committed to transport the contracted quantity failing which it has to pay the pipeline transportation cost.
The company has since July last year imposed a pro-rata cut in supplies on all its customers, including fertilizer and power firms.
The ministry had instructed Reliance to supply gas to priority sectors in full and if any left to other sectors on pro-rata basis.