GAIL-RIL deal on D6 gas allocation falls through

A potential tie-up between Reliance Industries Ltd (RIL) and GAIL India for marketing natural gas has turned out to be a non-starter with the D6 gas allocation going into government hands.

Gail, the biggest gas producer and the biggest marketer of gas in the country, RIL, had in 2007 signed a memorandum of understanding (MoU) for marketing gas but the margin that GAIL had hoped to earn from the D6 gas did not materialise.

GAIL India Chairman and Managing Director B C Tripathi said the availability and possibility of gas has changed with the change in government policy. "The government policy is different now. The MoU is not valid any more," Tripathi told Business Standard.

The company would, however, continue to pursue another MoU between the two companies that deals with jointly scouting for overseas petrochemical business. Under this MoU, signed in December 2007, GAIL and RIL were to identify opportunities that were to be later examined by a working group. GAIL and RIL were to set up a special purpose vehicle for such projects but a joint venture is yet to take shape.

Though the D6 gas is not available to GAIL for marketing, the government-controlled company is optimistic that it will continue to be the biggest player in the natural gas business by joining hands with other players like Oil and Natural Gas Corporation and Gujarat State Petroleum Corporation.

"We would continue to dominate the market because of our reach in terms of pipeline connectivity," said Tripathi. GAIL currently markets 85 million standard cubic metres a day (mscmd) that includes production from nominated and joint venture fields, and regassified-LNG.

According to the term sheet signed with RIL, GAIL was to have marketed and transported a portion of RIL gas besides transporting natural gas that RIL would market itself. RIL uses the GAIL pipeline network for last mile connectivity and link up to areas where it does not have reach.

GAIL's revenue from natural gas transmission business increased by 28 per cent during 2009-10 to Rs 3,168 crore as against Rs 2,482 crore in the previous year. The sales from natural gas trading increased by 3 per cent to Rs 18,803 crore as against Rs 18,308 crore in 2008-09. It transmitted 106.74 mscmd gas in 2009-10, an increase of 28 per cent from 83.29 mscmd in the previous year, while it sold 81.43 mscmd, up 3 per cent from 79.06 mscmd in the previous year.