In what may provide a new lease of life to the Ratnagiri power project (erstwhile Dabhol), the government has decided that the entire gas requirement of the beleaguered power project would be met indigenously and from the D6 gas field of Reliance Industries Limited in the Krishna Godavri basin.

The empowered group of ministers (eGoM) on gas pricing and utilisation, under the chairmanship of external affairs minister Pranab Mukherjee met on October 23 and recommended allocation of 8.5 million standard cubic meters (mmscmd) of gas to Ratnagiri power project from September 2009.

According to the minutes of the eGoM meeting, RGPPL would be accorded priority and will be supplied 1.4 mmscmd during January to March 2008 and 2.7 mmscmd during April to September 2009 (subject to commencement of production by RIL) within the overall allocation of power sector (18 mmscmd) decided earlier by the eGoM from RIL?s D-6 field. Further, as per the eGoM?s decision, as much as 8.5 mmscmd would be supplied to RGPPL after September 2009 from RIL?s D-6 field.

This is a significant decision as the quantum of gas allocated to Ratnagiri is almost half the total quantity of gas earmarked by the eGoM for the power sector on priority basis. Out of the 40 mmscmd of gas, to be produced by RIL from its D6 gas block, as much as 18 mmscmd has been allocated for power plants lying idle due to gas shortages.

Alongside, the government has also acceded to the long pending demand of the Andhra Pradesh chief minister Y R Reddy that, given the proximity of the D6 gas field, the stranded gas based power plants in the state should be connected with RIL?s gas field in the KG basin. Sources said that the government of Andhra Pradesh has requested that 8.93 mmscmd gas be supplied to the 10 power plants situated in the state, including the stranded power plants.

The stranded gas based power projects in Andhra Pradesh will be accorded the next priority. It will be only after meeting the demand of RGPPL and power plants in Andhra Pradesh that the demand of NTPC and other power projects will be considered.

It is expected that RIL would being its gas production by December end or January 2009 at the level of around 5 mmscmd and increase it to 25 mmscmd by March 2009 to 40 mmscmd by May 2009 and up to 55 mmscmd by July 2009.

Officials said that in view of the high RLNG prices as also the uncertainty regarding supply of RLNG, the option of supplying indigenous gas to be produced from RIL?s KG-D6 field to RGPPL has been be considered. Presently, as against its demand of 8.5 mmscmd, RGPPL is being supplied around 5.4 mmscmd (equivalent to 1.5 mmtpa) of regassified LNG, which is sourced by Petronet LNG Ltd from RasGas of Qatar. However, PLL?s contract with RasGas Qatar for supply of 1.5 mmtpa is only till September 2009. Also, the quantity is only sufficient to meet the requirement of two power blocks of RGPPL.

On the ministry of power?s request to allocate gas from RIL?s D6 gas field to six power plants of NTPC (with a requirement of 7 mmscmd), the eGoM have directed the ministries of power and petroleum to work out details of gas supplies to power plants after the requirements of Ratnagiri and the power projects in Andhra Pradesh are met.

?EGoM considered the proposal regarding the supply of 18 mmscmd earmarked for the power sector to various power plants and noted that after RGPPL priority should be given to the Andhra Pradesh power plant. The power and the petroleum ministries would hold discussions to arrive at a mutually acceptable decision and decide on the supply of natural gas to various power plants. In case of any difficulty in arriving at a decision, the issue would be brought again before the eGoM,? said a senior government official who was part of the eGoM meeting.

RGPPL is presently being supplied RLNG at a pooled price of $5 per mmbtu. Justifying the supply of domestic gas to RGGPL, officials explained that the present price of around $ 8.5/mmbtu for the 1.5 mtpa of RLNG is valid only till December 2008 and the price for the remaining period of the contract (January-September 2009) would be re-negotiated and is likely to be around $ 16/mmbtu.

?Therefore, the pooled price is likely to increase from the present $5/mmbtu to $7.8 to 8.5/mmbtu in the period from January to September 2009. If PLL contracts RLNG for gas supply for RGPPL?s third block as well, this would be at the prevailing high international prices, thereby pushing up the ex-terminal pooled price even further to $ 9.2 mmbtu in January 2009, which would subsequently increase every month,? the official said.

Further, if RGPPL is to continue to run on RLNG, spot RLNG would have to be sourced, as gas is not available on term contracts, both for meeting the gas requirement of the third power block as also the requirement of the two power blocks beyond September 2009. The prices of spot RLNG are very high and have even touched US $ 22/mmbtu on account of higher LNG demand compared to the present liquefication capability and high international crude prices.