Company Update: Reliance Industries

Company Update: Reliance Industries

The government has asked Reliance Industries (RIL) to supply natural gas from the company’s eastern offshore D6 fields to the beleaguered Dabhol power plant, a segment that gets top preference for gas allocation along with fertiliser units.

A Petroleum Ministry statement said that gas to the Ratnagiri Gas and Power (Dabhol) plant would be within the overall allocation of 18 mmscmd for the power sector, while detailing customers for the initial 40 million standard cubic meters per day of gas to be produced from Krishna Godavari basin D6 field.

It has been decided that RGPPL be supplied 1.4 mmscmd during January to March 2009 and 2.7 mmscmd during April to September 2009, subject to commencement of production, within the overall allocation of power sector (18 mmscmd).

Regarding pricing, it has been decided that D6 gas would be sold to all customers at the rate of $4.2 per million British thermal unit (mmBtu) if crude oil price averaged greater or equal to $60 per barrel in the year preceding the sale.

As per the gas utilisation policy approved by the Empowered Group of Ministers (EGoM), Reliance is to first supply gas to existing gas-based urea plants and then give 3 mmscmd to LPG plants.

Thereafter, up to 18 mmscmd of gas was to be given to gas-based power plants that were lying idle/under utilized or likely to be commissioned during 2008-09. We maintain a BUY on RIL, with a target price of Rs1,880.