OREANDA-NEWS. May 30, 2011. GAIL India is cashing in on the shortfall in gas supply to various companies created by the drop in output from Reliance Industries’ D6 field in the Krishna-Godavari (KG) basin.

The country’s biggest gas marketing company is importing liquefied natural gas (LNG) from the global spot market and selling most of it to Reliance’s customers in the power, steel and petrochemicals business. After regasification, the gas is being sold to customers such as NTPC and Essar Steel. “Even Reliance has bought some gas from us for its petrochemical plants,” said a GAIL official.

Against an earlier output of 60 million standard cubic metres per day (mscmd), RIL is now producing 47-48 mscmd. After output from the country’s biggest gas producing block dropped 20 per cent, the ministry directed RIL in March-end to first meet the demand of priority sectors such as fertiliser and power (all supply and pricing in India is decided by the government). And, if any gas were left, to supply to non-priority sectors such as steel, petrochemicals and refineries on a pro-rata basis. RIL, accordingly, cut supply to the latter sectors.

Therefore, companies in power, steel and petrochemicals have no option but to depend on imported LNG, though it is much costlier. “Compared to the price of USD 4.2 per million British thermal units (mBtu), the imported regasified LNG is being sold at USD 11-12 per mBtu,” said an industry official.

Since January, GAIL company has been importing a cargo of LNG every month, from various sources — Gazprom, RasGas, BG and Marubeni. “With one cargo the company can supply 2-2.5 mscmd of gas for a month. Most of it is going to the companies that are facing shortage due to fall in D6 output,” a GAIL official said.

In accordance with the government gas utilisation policy, Reliance has signed up customers for 60.76 mscmd of gas. The government had accorded highest priority to fertiliser plants, followed by LPG extraction units, power plants and city gas distribution projects in allocating KG-D6 gas.

Sixteen fertiliser plants have been allocated 15.35 mscmd of KG-D6 gas on a firm or permanent basis, while 27 power plants in public and private sectors have been allocated 29 mscmd of gas. A sizeable 7.79 mscmd of gas has been signed up with steel producers, while LPG plants have got 2.59 mscmd. Refineries, including that of RIL, have been allocated 3.46 mscmd, city gas projects 0.65 mscmd and petrochemical plants remaining 1.92 mscmd.