Oil Ministry wants gas off priority list

A The move aims at diverting gas from urea units to power plants

New Delhi : The Oil Ministry has proposed to abolish the priority ranking in natural gas allocation so that the scarce resource currently consumed by urea plants can also be diverted to fuel-starved power plants. The Ministry has moved a note for an Empowered Group of Ministers (EGoM) proposing to abolish the priority ranking according to which natural gas is first given to urea manufacturing fertilizer plants, then to LPG units, followed by power plants, city gas, steel and refineries, sources said.

This priority ranking meant when output from Reliance Industries' eastern offshore KG-D6 fields started falling in 2011, supplies to refineries was cut first, then steel and city gas sectors.

From November 2011, supplies to 25 power plants, which had signed for 29.74 million standard cubic meters per day (mmscmd) of KG-D6, were pro-rata cut and this year completely stopped as KG-D6 plummeted to one-fourth of volumes touched in March 2010. Sources said the current KG-D6 production of about 15.3 mmscmd is just sufficient to meet the full requirement of fertiliser sector and some of LPG plants, leaving no gas for power plants.

The Ministry has put two options before the EGoM headed by Defence Minister A K Antony - equal priority to all core sectors of fertilisers, LPG, power and city gas distribution or according fertiliser and power equal priority. The gas supplies would be redistributed among the sector users "pro-rated based on the signed gas supply agreements". If available gas is to be redistributed among the four core sectors, it would reduce supplies to fertiliser plants by 9.44 mmscmd and lead to an extra urea import of 4.73 million tonnes that would levy an additional subsidy burden of about Rs 5,591 crore per annum.

On the other hand, supply to power sector will increase by 10.07 mmscmd, resulting in additional production of about 16,000 million units of electricity per annum. Sources said the ministry reasoned that the production cost of power projects forced to use re-gasified LNG would go down by Rs 10,900 crore per annum.

The ministry's second option giving equal priority to the power sector as is available to the fertiliser sector, would mean gas supply to urea plants would go down by 9.07 mmscmd forcing an import of 4.54 million tonnes of urea at an additional subsidy burden of Rs 5,372 crore per annum. Gas to power would go up by 10.79 mmscmd leading to an extra output of about 17,000 million electricity units per annum, saving in production cost of Rs 11,700 crore per annum.