Ministry to suggest abolition of priority in gas supplies

This move, if approved, will help raise Supply to power sector by 10.07 mscmd

With a change of guard at the petroleum ministry, the new minister is suggesting abolishing the priority ranking in natural gas allocation among core sector fertiliser, LPG, power and city gas distribution projects — a step introduced in May 2011 when S Jaipal Reddy was at the helm.

The proposal by the ministry, which is now headed by Veerappa Moily, for the empowered group of ministers (EGoM) suggests according “equal priority to all core sector fertilisers, LPG, power and city gas distribution” in supplying gas produced from blocks awarded under the New Exploration Licensing Policy (NELP).

The gas supplies would be redistributed among the core sector users “pro-rated based on the signed gas supply agreements”. This, it said, would reduce gas supply to fertiliser plants by 9.44 million standard cubic metres per day and lead to an extra urea import of 4.73 million tonnes that would levy an additional subsidy burden of about `5,591 crore per annum.

“Supply to power sector will increase by 10.07 mscmd. This will result in additional production of about 16,000 million units per annum,” it said. It has reasoned that the production cost of power projects forced to use re-gasified LNG would go down by `10,900 crore per annum.

The current production level from NELP field, mainly Reliance Industries KG-D6, is insufficient to meet the core sector allocation of 52.06 mscmd and as a result, the supply to the power sector has come to naught since last March.

“The supply to the first priority core sector that is fertiliser sector is being met fully and the supply to LPG sector is being met partially,” it said. Fertiliser got 14.64 mscmd while LPG received 1.72 mscmd. The power and city gas distribution sectors got nothing.

The ministry’s second option gives equal priority to the power sector as is available to the fertiliser sector. In this scenario, gas supply to fertiliser plants would go down by 9.07 mscmd forcing an import of 4.54 million tonnes of urea at an additional subsidy burden of `5,372 crore per annum.

Gas to power would go up by 10.79 mscmd leading to an extra output of about 17,000 million units per annum. The saving in production cost to projects using RLNG would be `11,700 crore per annum. If that is also not acceptable to the EGoM, the ministry has proposed that the May 2011 order giving supply priority be continued.

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