Companies in fertilisers and LPG, which are largely immune to the supply crunch on natural gas due to the stagnating output from the KG D6 block, could soon face serious input shortages. In a move that could worsen the investment scenario in the economy, the petroleum ministry has sought the approval of an empowered group of ministers (EGoM) led by Pranab Mukherjee for a new road map to regulate natural gas supply. As per this, even priority consumers won’t be spared supply cuts if, as feared by many analysts, Reliance Industries’ KG D6 output falls further. The KG D6 output accounted for a quarter of all gas produced in the country in 2010-11.
According to sources, the ministry has also sought the consent of the EGoM on gas utilisation for substituting KG-D6 gas with supplies from ONGC for some users and for adjustments in the allocation to firms like National Fertilizers, Ratnagiri Gas and Power and Pragati Power, all in the public sector. The EGoM is the same one headed by finance minister Pranab Mukherjee that had set the price of gas at $4.20 per mmBtu.
Fertiliser, LPG extraction, power and city gas distribution are given priority in that order when it comes to distribution of natural gas.
Uncertainty in gas supply is precipitating generation problems in the power and fertiliser sector among others. This comes at a time when thanks to the uncertain global scenario and absence of internal reforms, the economy is experiencing one of the worst situations on investment in recent years. Second quarter GDP data showed a 0.6% decline in gross fixed capital formation, a barometer of investment.
Another reason why the ministry wants EGoM’s approval for the road map is that supply cuts will affect investments already made by user industries and which are therefore likely to lead to litigation, if changed. For instance, Essar Steel is the latest gas-using industry that has moved the Supreme Court on the issue of supply cuts.
As per the plan already implemented in March when output from the D6 block fell below 52 million metric standard cubic metres a day (mmscmd) needed to satisfy all priority consumers, supply cuts are envisaged in the order of city gas distribution, power, LPG and lastly to the fertiliser sector, which receives the highest priority in gas supply.
The EGoM is expected to give its views on reducing the gas allocation to RGPPL from 8.5 mmscmd to 7.6 mmscmd and to NFL from 0.65 mmscmd to 0.61 mmscmd as they have got non-administered price gas from ONGC. It may also consider whether PPCL can be given an extra 0.83 mmscmd of KG D6 gas.
In the meantime, power ministry has sought an extra 55 mmscmd gas for new projects of 14,000 MW over the next five years, while the fertiliser ministry wants 64 mmscmd extra over the same period. Switching to the three-times costlier imported liquefied natural gas (LNG) can have serious impact on the operational cost of these industries.
But the road map for supply cuts suggest that possibility. Now, production from the D6 field has dropped to 42 mmscmd and the requirement of fertiliser and LPG units are being fully met although power sector needs are only partially met. In October, city gas distribution sector did not get any supply at all, sources said.