RIL buys gas from Petronet, Shell for captive use

To tide over the shortage of natural gas from its D6 fields in the Krishna-Godavari (KG) basin, Reliance Industries (RIL) is buying regasified liquified natural gas (R-LNG) from Royal Dutch Shell and Petronet LNG at double the price.

Senior company executives at Royal Dutch Shell and Petronet LNG confirmed that RIL was buying R-LNG for captive use. RIL did not answer an email sent to it regarding the development.

The government had allowed RIL to use gas for its own use from the K-G basin (all gas use and pricing, from any source, has to be approved by the petroelum ministry). RIL has a firm allocation of 1.9 standard cubic metres per day (mscmd) for its Gandhar and Nagothane petrochemical plants in Gujarat, while its Jamnagar refinery has been allocated 2.34 mscmd.

It has so far signed up customers for 60.76 mscmd of gas, while production from KG-D6 has fallen to 50 mscmd from 62 mscmd in March 2010. The government had asked RIL to give priority to users in fertiliser, LPG, power and city gas distribution sectors.

According to a senior official at Shell, RIL has been buying gas from the Dahej and Hazira terminal to meet the shortage of gas from its own flagship KG basin.

“Reduction in gas output from RIL’s KG basin has made RIL buy gas from the market for their captive use in their refineries and petrochemical units. They are buying good quantity of gas from the market,” a senior executive from Shell told Business Standard on condition of anonymity.

At present, spot LNG is sold at $13.65 per mBtu, up from $10.70 mBtu this March. GAIL, which markets gas for Petronet LNG, has raised spot LNG prices twice since March this year.

Analysts say spot LNG prices will continue to rise over the next few months, as power plants will work to full capacity in India, China and Japan.

“Post the earthquake and tsunami in Japan and a high demand of gas from the region, LNG prices in the Asian markets are northward bound,” said one.