Oil Ministry orders Reliance gas for core users

Rejecting the plea of steel makers, the Oil Ministry has ordered natural gas produced from Reliance Industries' KG-D6 field to be first allotted to core users in power and fertiliser sector, asserting it is competent to take such a decision.

"...The fact that production from KG-D6 fields is presently below expectation, the supply of non-core sector on whom cut has been imposed cannot be restored at the cost of the core sector," the ministry said in a order dated May 18.

Reliance had on May 8 cut supplies to sponge iron makers, refineries and petrochemical plants so that its falling output can meet full demand of core users like fertiliser and power.

The move was challenged by sponge iron makers Welspun Maxsteel and Ispat in the Bombay High Court and Essar Steel in Delhi High Court. The Bombay High Court asked the ministry to hear the petitioners and yesterday's order was issued following that hearing.

"Ministry of Petroleum and Natural Gas is competent to take decision on gas supply within the Gas Utilisation Policy laid down by Empowered Group of Ministers (EGoM)," it said rejecting the steel makers plea that such a decision can only be taken by EGoM which had originally allocated the KG-D6 gas.

The EGoM had in 2008 and then in 2009 allocated KG-D6 gas among users in fertiliser, LPG plants, power units, steel makers, refineries, petrochemical units and city gas firms.

Oil Ministry's curtailment order last month followed drop in production at KG-D6 fields to less than 50 million standard cubic meters per day. Against this, Reliance had signed firm contracts for 57.15 mmscmd and needs another one mmscmd for the East-West pipeline that ferries the gas.

Core sector users have signed up for 47.6 mmscmd and the ministry wanted their demand to be met first and any gas left after this to go to users in steel, refineries and petrochemical sector.

The order stated the ministry's "directions was in furtherance of EGoM's decisions and has been issued to ensure higher supply to those customers, who were given high priority by the EGoM in its allocation decisions".

"In view of the recent shortfall in KG-D6 production, the contractor (Reliance) has been directed vide ministry's letter dated March 30 and subsequently dated April 21 to supply KG-D6 gas in full to fertiliser, LPG, power and city gas distribution (domestic and transport) sectors, apart from gas needed for pipeline operation, in larger public interest.

"If there is a shortfall in meeting the firm demand of the remaining sectors, pro rata cuts should be imposed on them. It is also made it clear that if production from KG-D6 fields increase, then the supply to various non core customers would also increase. So supply is fully dependent on production," the order stated.