Govt for RIL cutting gas output for Petronet sake; RIL says no

The government has asked Reliance Industries to cut gas output from its eastern offshore KG-D6 fields so that imported fuel stocks can be cleared, a demand that the Mukesh Ambani-run company has rejected.

Petroleum Ministry had in a meeting on April 30 asked Reliance to explore cutting down output so that the imported liquefied natural gas (LNG) accumulating at Petronet LNG Ltd's Dahej terminal in Gujarat can be sold to customes.

"Reliance may examine whether it would be possible to cutback the production from KG-D6 fields by some amount for a short period," according to the minutes of the meeting.

"Reliance has not agreed to or planned to cut down on the production of gas from KG basin," a company spokesperson said.

Petronet, which ships gas in its liquid form (LNG) from Qatar on a long-term contract, is facing a glut after three fertiliser plants that used LNG as feedstock shut down for maintenance and a power plant owned by NTPC tripped. Also, NTPC's Dadri plant is to undergo a shutdown from tomorrow.

The schedule for outgo of gas from Petronet's Dahej import terminal in Gujarat was less than the inflow, creating a backlog of 75 million cubic meters or 96 per cent of inventory limit, according to the minutes.

The problem has been complicated by Petronet's decision to lease out Dahej terminal to Gujarat State Petroleum Corp (GSPC) for import of 9 cargos or shipload of LNG even though state gas utility GAIL India did not have capacity in pipeline to evacuate any gas beyond the domestic production and already contracted long-term LNG.

While the Ministry did not ask Petronet to defer import of LNG - Petronet's contract with RasGas of Qatar has provisions to defer any cargo(s) and take their deliveries later during the year, it wanted domestic gas production to be cut to accommodate the expensive LNG.

By asking Reliance to cut output, the ministry had hoped it can push the imported gas to customers using KG-D6 gas.

Industry observers expressed surprise at the decision saying imported expensive gas was being prioritised over cheaper domestic gas. "The priority should be to use cheaper fuel first and use expensive gas later," an official said.

Petronet's imports from Qatar cost $5.42 per million British thermal unit (ex-Dahej), while KG-D6 gas is priced at $4.20 per mmBtu.

The April 30 meeting in the ministry also decided to set up "a coordination mechanism" between the domestic producers and Petronet so that commitment to buy overseas LNG is met.

Power and fertiliser plants prefer using KG-D6 gas as feedstock, as besides being cheaper cheaper, they also get attractive commercial terms from Reliance.