Shift fertiliser plants from KG-D6 to ONGC gas: OilMin

The oil ministry wants fertiliser plants like Rashtriya Chemicals and Fertilisers' Thal unit to buy natural gas from ONGC's C-Series field, so that fuel from Reliance Industries' Krishna Godavari (KG-D6) fields can be given to users in non-core sectors.

"The delivered price of KG-D6 gas in (Maharasthra's) Uran region (where RCF's Thal plant is located) is around $6.97 per million British thermal unit (mBtu), whereas the delivered price of gas to become available from ONGC's (western offshore) C-Series and Bandra Formation (fields) would be $6.03 per mBtu," the Oil Ministry wrote to the Department of Fertilisers on September 14.

Industry sources, however, said the ministry may have erred in calculating the delivered rates, as the burner tip price of KG-D6 gas supplied to RCF was $6.72 per mBtu, while C-Series gas, if marketed by ONGC, will cost the urea-making plant $6.78 per mBtu.

If GAIL was to sell the C-Series gas, RCF, which currently buys 0.95 million standard cubic metres per day (mscmd) of KG-D6 gas for its Trombay plant and another 2.1 mscmd for its Thal unit, would pay $6.87 per mBtu.

The ministry, in its letter, admits the pressure of gas from the C-Series and Bandra Formation fields was "much lower compared to pressure at which KG-D6 gas is being transported through GAIL's pipeline network in the Uran region" and so local network charges (for raising pressure) may be levied.

Also, the terms of supplies from RIL are much more lucrative than those of ONGC/GAIL, they said, adding any firm unable to take its allocated quantity of gas from KG-D6 is allowed to make up for the shortfall in one year's time.

RIL also gives a four-month grace period beyond the contract period, ending March 31, 2014, to make up for any allocated gas the consumer may not have been able to take. On the other hand, ONGC/GAIL contracts do not have provisions for making up for gas, consumers may have not been able to take.

The oil ministry's move to shift plants like RCF follows its allocations far exceeding the supplies from KG-D6. While it has identified users for about 64 mscmd of KG-D6 gas, RIL says it can produce only 60 mscmd on a sustained basis.

Sources said the delivered price of KG-D6 gas in the Uran region is $6.72 per mBtu. In comparison, if ONGC is to sell C-Series gas on its own, RCF would pay $6.78 per mBtu.

If GAIL is to market the gas, the price would be $6.87 per mBtu due to the higher incidence of service tax.

The mismatch between the allocation and actual production of KG-D6 gas forced the government to switch users like RCF to ONGC, sources said, adding that ONGC is to produce between 2.1 and 3 mscmd from the C-Series fields.

While sales of KG-D6 gas amount to inter-state sales, attracting a central sales tax of 2 per cent, ONGC gas sales would attract Maharashtra government sales tax.

The gas vacated by RCF would go to companies like Essar Oil's Vadinar oil refinery in Gujarat, which has so far not been able to sign a contract with RIL for the 0.6 mscmd that was allocated to it.

Sources said RIL has told the Oil Ministry that it can at present sustain output of only 53-54 mscmd from the Dhirubhai-1 and 3 fields in the KG-D6 block and 7-8 mscmd from the MA field in the same area.

The company had in December last year tested facilities at KG-D6 for a peak production rate of 80 mscmd, but it estimates this level of production can only be achieved in 2012.

Of the current production, about 14 mscmd is sold to fertiliser plants, 28 mscmd to power plants and 10 mscmd to petrochemical plants and refineries. The remaining 7 mscmd of gas was consumed by other sectors such as sponge iron plants, LPG, city gas distribution and the East-West pipeline.