More D-6 gas may dry up spot LNG in months

With daily gas supply from Reliance's D-6 block in the Krishna-Godavari basin likely to touch 80 million cubic metres by year-end, the market for spot LNG cargo is likely to dry up.

And, as talk of de-regulation of gas (a source says there’s a move to do so by September) gain prominence, the major buyers of spot, including Reliance Industries, are willing to shift to D6 gas if the central government allows it.

India imports about four to five spot cargoes every month, which is about 10-14 million cubic meters of gas per day (mmscmd)at Hazira and Dahej in Gujarat, where the two operating LNG terminals are located. The prime consumers of spot LNG are Reliance, Essar, Gujarat State Petroleum Corporation (GSPC) and NTPC.

"Except NTPC, which has an unresolved legal dispute with RIL, all the three main consumers are willing to buy D6 gas instead of spot," said industry sources.

Spot LNG prices in India have been moving higher in May and June, as buyers continue to seek cargos and supplies are constrained. But, the landed cost of spot LNG and D6 is nearly the same as of now, at about $5.5-6/mmbtu.

Once production touches 80 mmscmd, which is likely by September, the government may deregulate allocation, while keeping control on the price, said a ministry source.

Reliance has already stepped up gas production from D6 to about 28 mmscmd and is in a position take this to 42 mmscmd. However, they are forced to produce less due to underutilisation, said industry sources.

A top Petronet LNG official has said recently that they are unable to attract more buyers for spot LNG and one of the reasons for this is rise in KG D6 output.

Reliance is the largest buyer of spot LNG, consuming about 4.5-5 mmscmd for its Jamnagar refinery. "We need about 18 mmscmd of gas for our refineries and we have already informed the Centre about this," said a Reliance official. He added that if deregulation is allowed, they will not need the Centre's approval every time they find a new buyer and can allot gas speedily.

 

 

 

 

GSPC is yet to sign a new long term contract with Petronet LNG and is waiting for D6 gas, said state government sources, adding: "By end-2009, there might be no spot gas requirement." Essar, which consumes about 3 mmscmd for its steel plant in Hazira, is currently buying spot LNG from Shell. Essar has also communicated to the Centre that they require domestic gas for their plant. "Essar Steel is in talks with Reliance to directly buy gas from the producer in case of deregulation of gas allocation," said sources in Essar. While Shell imports about two to three of spot cargoes every month at the Hazira terminal, Petronet LNG imports two spot at Dahej. NTPC is yet to sign the sales purchase agreement with RIL for buying gas. Of the total 18 mmscmd allocated for power, NTPC’s quota is about 3 mmscmd.