OilMin proposes key changes in natural gas allocation policy

Power producers wanted priority allocation of natural gas to meet energy deficit in the country.

New Delhi: The Oil Ministry has suggested key changes in the natural gas allocation policy in the view of sharp drop in output from Reliance Industries' eastern offshore KG-D6 block.
In a note to the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, the ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff.
Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped.
The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them next to fertiliser and stranded assets of power sectors and before the new demands of fertiliser and power sector.
Oil Minister S Jaipal Reddy said it is for the EGoM to take a decision on these so that scarce domestic natural gas is available only for core sectors.
KG-D6 gas output has fallen to below 39 million standard cubic meters per day after touching peak of 60 mmscmd in March 2010, prompting the ministry to suggest changes in the allocation policy.
Reddy, who got a first hand account of problems being faced by power producers when corporate leaders, including Anil Ambani of Reliance Power and Ashok Hinduja of Hinduja Group, briefed him about the fuel shortages, said no dates for the EGoM have been fixed yet.
"They (power producers) explained the various aspects of problem which they are facing. I have already circulated a note for EGoM and these aspects will be brought before the EGoM," he said.
Power producers wanted priority allocation of natural gas to meet energy deficit in the country.
"Decision will be taken at the EGoM. Until EGoM meets, I cannot comment on their demands," Reddy said.      

His Ministry's agenda for EGoM recommends that "future gas allocations be made only to urea fertiliser plants" as gas allocation to urea has been accorded top priority. It says that supplies to phosphates and potassium fertiliser producers be stopped since the government pays them a fixed subsidy and "cheaper input gas does not lead to lower subsidy burden on the government".
It wants the EGoM to approve that "all existing and future allocations of NELP gas for power plants will be subject to the condition that the entire electricity produced from allocated gas shall only be sold to the distribution licensees at tariffs determined (or adopted) by the tariff regulator."

Natural production from KG-D6 has fallen to less than 39 mmcmd from the 61.5 mmcmd peak in March 2010. The output is far short of the 70.39 mmcmd forecast in the Field Development Plan approved in 2006.
The fall forced the oil ministry to first apply a pro-rata cut in supplies to all consumers in July 2010 and with further dip in output it restricted supplies to only core sectors of fertiliser, LPG and power.