Ahmedabad: The decision of India’s ministry of petroleum and natural gas to allow the country’s largest marketer and transporter of natural gas, GAIL India Ltd, to serve as the sole marketer for natural gas from Panna Mukta Tapti (PMT) gas basin from 1 April 2008 has left gas consumers in Gujarat worried because the state-owned gas company could choose to sell the gas elsewhere.

A GAIL gas terminal at Hazira in Gujarat

“Gujarat may end up losing 8-9mscmd, its share of PMT natural gas, and this is not good news for small and medium industrial units as GSPC and GGCL will find it difficult to find additional source of gas at this stage," said D.M. Desai, an energy analyst.

GGCL supplies gas to more than 150,000 households, 900 small and medium industries and 55,000 CNG vehicle owners in the industrial belt of Ankleshwar and Surat in south Gujarat.

GSPC serves around 300 small and medium enterprises, 25,000 residences and 12,000 CNG vehicles. Both firms service these customers using their share of PMT gas.

The two companies have served notices to their consumers saying they might face difficulties with the regular gas supply operations.

According to people familiar with the development in the Union government and in Gujarat, GAIL could divert over 80% of the gas Gujarat currently gets from PMT to either north India through the Hazira-Bijapur-Jagdishpur (HBJ) pipeline of GAIL or to the Ratnagiri Gas & Power Pvt. Ltd project in Maharashtra.

Companies in Gujarat believe that GAIL could possibly divert the majority of gas to fertilizer and power firms in north India.

Located along the company’s HBJ pipeline, these units enjoy Central subsidy. Currently, these firms buy gas from GAIL at around $3.8-$5.7 (Rs149.72-224.58) per million British thermal unit (mBtu) equivalent, while the BG-RIL-ONGC consortium sells them gas at around $9 per mBtu. Once GAIL starts marketing PMT gas, these fertilizer and power firms will get natural gas at a relatively cheaper price. This will reduce their production cost and, consequently, the subsidy burden of the government.

Apart from GGCL and GSPC, Indian Petrochemicals Corp. Ltd and RIL’s petrochemical complex at Hazira, too, are PMT customers.

Arvind Kapadia, president, South Gujarat Chamber of Commerce and Industry, said that most of the small and medium enterprises (SMEs) that get PMT gas are in businesses such as textiles, pharmaceutical and chemicals and together employ over 200,000. “The SMEs would have to put in huge capital to equip their machinery for using alternative fuel. Some of them may find it unviable and shut shops, rendering thousands of workers jobless," Kapadia added.

GAIL, however, said the interest of the end consumer was foremost to it and that it would take all necessary steps to uphold the interest of the direct end consumers of the PMT gas in all regions, including Gujarat. “PMT gas would be supplied by GAIL in accordance with the gas utilization policy and the interests of city gas consumers and users of gas for feedstock like fertilizer, power and petrochemical would continue to receive priority attention. In view of the importance of city gas projects, these would continue to be given high priority," a GAIL release said last week.

However, Kapadia is not convinced. He said GAIL’s stance is not clear yet as it talks of households and vehicle users but is silent on SMEs. He has also written to the firm seeking a clarification.

GAIL markets about 4.8mscmd of gas from PMT at $4.75 per mBtu. RIL-BG-ONGC sell 4.8mscmd at $3.96 per mBtu and another 6.5mscmd at $4.08-$5.70 per mBtu. With sole rights of marketing PMT gas, GAIL is likely to earn a net income of about Rs112 crore as marketing commission and Rs450 crore as transportation charges.

GGCL and GSPC will find it difficult to source any other gas at least for the next two to three years. “Reliance gas from KG (the Krishna-Godavari basin) is unlikely to come before mid-2009 and production from most of the on-shore supplies in the state are dwindling. There is also not much space available to import additional LNG (liquefied natural gas) at the existing terminals of Petronet LNG at Dahej and Royal Dutch Shell at Hazira. This has put GSPC and GGCL in a tight spot as they cannot divert any of the existing gas they sell to power and fertilizer companies in the state," Desai said.