Govt asks RIL to cut supplies to fertiliser, power plants

Oil Ministry this week issued written instructions to the billionaire Mukesh Ambani-run firm to make a "pro-rata" cut in gas supplies to all existing customers if the production from its KG-D6 field cannot support new customers, two sources with direct knowledge of the information have said.

This follows RIL expressing inability to sign gas supply contracts with more customers owing to production constraints. Though RIL's Dhirubhai-1 and 3 fields in KG-D6 block can sustain an output of only 60 million cubic meters a day, the ministry has gone ahead and allocated about 64 mmscmd.

RIL, so far, has signed or committed to sign agreements for supply of 57.8 mmcmd of gas. The company told the Oil Ministry at a review meeting last month that it can only ink contracts on a firm basis for another 2.2 mmcmd as it did not want to sign for product it did not have, sources said.

Sources said the ministry had allocated gas to users, who were not ready to receive the fuel and that was the reason why at least Gas Sales and Purchase Agreements for 5.18 mmcmd of gas could not be concluded.

Users awaiting signing of GSPAs include state-run NTPC (1.14 mmcmd), Essar Oil's Vadinary refinery in Gujarat (0.6 mmcmd), Oil and Natural Gas Corp's (ONGC) LPG units (0.406 mmcmd), Rithala power plant in Delhi (0.4 mmcmd) and Bawana power plant (0.93 mmscmd).

Sources said RIL indicated its willingness to sign up with state-owned firms like NTPC and ONGC for the balance of 2.2 mmcmd uncommitted production it had but the ministry wanted others like Essar also to be accomodated.

"GSPAs have to be signed with all the customers, who have been allocated KG-D6 gas and are ready to take the gas," the ministry wrote to RIL on July 12.

"On the day that KG-D6 production is not sufficient to cater to all the consumers with firm allocation, pro-rata cuts should be imposed on all firm consumers," it added.
An Empowered Group of Ministers (EGoM) had in October last year allocated close to 61 mmcmd of KG-D6 output on firm or permanent basis. Allocations were made only to firms that said they could consume the fuel immediately as the Gas Utilisation Policy does not provide for reservation or holding up of production for anyone.

Sources said Oil Ministry allocated close to 64 mmcmd of KG-D6 gas and did not cancel allotments done to companies that failed to take deliveries according to their self- declared timelines.

Sources said customers with pending allocations are those who have not been in a position to take gas for a considerable period of time.

It has been suggested that since there can be no reservation of gas, as stipulated by the EGoM which framed the Gas Utilisation Policy, such allocations should automatically be deemed to have lapsed after a reasonable period. The Oil Ministry has so far not taken any view on this, they said.

Of the current production, about 14 mmscmd is sold to fertiliser plants, 28 mmscmd to power plants and 10 mmscmd to petrochemical plants and refineries. The remaining seven mmscmd of gas was consumed by other sectors such as sponge iron plants, LPG, city gas distribution and the East-West pipeline.

Essar Oil was allocated 0.6 mmscmd of gas on a firm basis, but the company has not yet signed a Gas Sales and Purchase Agreement (GSPA) with RIL, as its Vadinar refinery in Gujarat was not ready to receive gas from the field till recently.
Sources said RIL has told the Oil Ministry that it can presently sustain output of only 53-54 mmcmd from Dhirubhai-1 and 3 fields in the KG-D6 block and 7-8 mmcmd from the MA field in the same area.

The company had in December last year tested facilities at KG-D6 for a peak production rate of 80 mmscmd, but it estimates this level of production can only be achieved by next year after more wells are drilled. RIL has 18 producing wells and has sanction of 12 more to produce peak output.

Oil regulator DGH has endorsed RIL's view on limitation of production, saying the output was in line with the approved Field Development Plan.
According to the FDP, peak output of 80 mmscmd was envisaged in 2011 and is to last till 2016.

Most recently, RIL signed GSPAs for supply of 0.86 mmscmd to the Koyali refinery of Indian Oil Corp (IOC) and 0.2 mmscmd to the Mumbai unit of Hindustan Petroleum Corp Ltd (HPCL).

RIL is in the process of signing GSPAs with IOC for supply of 0.74 mmscmd to the Mathura refinery and with NTPC for 1.51 mmscmd.
In addition, 1 mmscmd gas is required for operation of the East-West pipeline, which transports KG-D6 gas from Kakinada in Andhra Pradesh to Baruch in Gujarat.