RCF rejects offer to swap KG-D6 gas for ONGC's

Cites quantity, pressure & tenure of availability as main issues.

State-owned Rashtriya Chemicals and Fertilizers Ltd (RCF) has turned down a government offer to swap its cheaper KG-D6 gas from Reliance Industries (RIL) for Oil and Natural Gas Corporation’s (ONGC’s) C-Series gas.

RCF sources said there were many issues with the government’s proposal, including quantity, pressure and tenure of availability of gas from ONGC.

“RCF is keen on a long-term availability, say a minimum of 15 years, and in this regard, KG-D6 is the best bet. There is an issue of availability as far as ONGC’s C-Series gas is concerned. Also, the C-Series gas is of low pressure and the company would be required to spend more to boost it. There is no decision on swap,” senior RCF officials, who did not want to be named, told Business Standard.

RCF procures 2.5 million standard cubic metres a day (mscmd) of gas at $4.2 per million British thermal unit (mBtu) from RIL. ONGC’s C-Series gas is priced at $5.25 per mBtu.

The delivered price of KG-D6 gas in the Trombay region is $6.54 per mBtu (including $0.12 towards marketing, $0.87 towards central sales tax of two per cent, $1.35 towards transportation through the east-west pipeline). On the other hand, the C-Series gas would cost RCF $6.76 per mBtu (including $0.12 towards marketing, $0.64 towards transportation through the GAIL pipeline and $0.75 towards local sales tax of 12.5 per cent).

“Availability of the quantity of C-Series gas is also an issue. In case of ONGC’s C-Series gas, whether the similar quantity will remain for a long-term was still unknown,” the officials said.

In its meeting on July 28, an Empowered Group of Ministers (EGoM) decided any gas which companies in the Uran region get from RIL should be swapped for C-Series gas.

An oil ministry official said the EGoM’s decision was based on the allocations made by the government with regard to KG-D6 gas. “The government has allocated users around 64 mscmd of KG-D6 gas, while RIL says it can produce only 60 mscmd. This shortage in production has led the government to take this decision,” the oil ministry official said.

ONGC’s C-Series fields on the western offshore went on production in August. The C-Series fields would begin with 0.8 mscmd output, which would rise to around 3 mscmd in a year.

RCF-rejected gas might go to Essar Oil Refinery at Vadinar, Gujarat, said the official.