Reliance to sign gas supply contract with Essar Oil

"They (RIL) have told us that they will sign the Gas Sale and Purchase Agreement (GSPA) soon," a top Oil Ministry official said here.RIL has sent a draft GSPA to Essar Oil and the contract may be inked within the next few days.

Spokesperson of the two firms could not be immediately reached for comments.
The government had allocated 0.6 million standard cubic meters per day (mmscmd)of gas from KG-D6 fields to Essar Oil's Vadinar refinery. RIL, however, refused to sign GSPA saying it did not want to commit gas more than it can produce from the Krishna Godavari basin fields.

KG-D6 fields can sustain production of only 60 mmscmd as against 64 mmscmd of allocation the Government has made to power plants, fertilizer units, refineries and steel plants.

RIL has already signed GSPAs for all of the 60 mmscmd output it can sustain. It did not want to sign any GSPAs as it did not want to commit and then default on supplies.

The official said RIL was told in no uncertain terms that it would have to abide by the government decision and sign contracts with all the customers it had identified.
The ministry first suggested that RIL make a "pro-rata" cut in supplies to all existing customers, if the output from KG-D6 cannot support new customers like Vadinar refinery.

But RIL insisted that such a move would be illegal as supplies can be cut to customers only when there was a natural dip in output. Supplies to existing customers cannot be cut by committing more than what can be produced.
"To break the stalemate, the Empowered Group of Ministers in late July decided that some customers of KG-D6 gas in the Uran region (of Maharashtra) would be shifted to other sources to vacate gas for already committed customers," he said.
So, Rashtriya Chemicals and Fertilizers, which draws some 2.1 mmscmd from KG-D6, was to be moved to state-run Oil and Natural Gas Corp's (ONGC) western offshore C-Series fields.

He, however, could not say why Vadinar refinery could not be supplied the C-Series gas and a core sector customer was shifted from the cheapest gas source in the country.

KG-D6 gas is priced at USD 4.205 per million British thermal unit (mmBtu) while C-Series gas is sold at USD 5.25 per mmBtu.Of the current production from KG-D6, about 14 mmscmd is sold to fertilizer 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 transporting KG-D6 gas

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