Wednesday, June 01, 2011

Reliance Asks Oil Ministry To Review Prioritisation of KG-D6 Supply

Faced with a gas crunch at its petrochemical plants, Reliance Industries has asked the Oil Ministry to review the prioritisation worked out while imposing cuts on KG-D6 gas supplies to non-core users.

With output from the KG-D6 fields falling from 61.5 million standard cubic metres per day to less than 48 mmscmd, the Oil Ministry has ordered Reliance to first meet the full demand of priority users -- power, fertiliser, city gas and LPG plants -- before supplying to non-core industries.

With output just a shade above core sector demand, supplies to steel plants, refineries and petrochemical units have been cut. Reliance is the biggest loser, as it faced cuts at both its refineries and petrochemical units.

Sources said Reliance last month wrote to the Oil Ministry saying petrochemical plants like LPG extraction units also strip natural gas of its higher fraction before it is burnt as fuel in industries and so, should be given equal priority in allocation of gas.

Natural gas predominantly consists of methane and small percentages of higher fractions of ethane, propane and butane. Whereas ethane is the feedstock for petrochemicals, propane and butane are mainly used for production of LPG.

Since these are value-added fractions, the government has always mandated that gas must be stripped of higher fractions before supply to various consumers. Various petrochemical and LPG plants were set up in India as a result of this policy.
Reliance said this policy was reiterated by an Empowered Group of Ministers, which allocated KG-D6 gas among various users in May, 2008.

"The government had allocated 2.59 mmscmd of KG-D6 gas to (state-run) GAIL for LPG and 1.92 mmscmd to Dahej/Nagothane petrochemical plants of Reliance," the letter said.

"While making the allocations in line with policy decided by the EGoM, it was directed that all locations where higher fractions are being used as fuel should be identified and steps should be taken to stop such usage of higher fractions as fuel by supplying lean gas at such locations," it said.

Reliance said while other sectors like steel have an option to use imported LNG, gas-based petrochemical units as well as LPG plants have to mainly rely on domestic sources of rich gas.

"However, we find that there is some mismatch between the declared policy of the government/EGoM regarding usage of higher fractions of natural gas and the lower priority accorded to them by Petroleum Ministry while directing sectoral cuts on KG-D6 supply," Reliance wrote.

"Again, there is a dichotomy that whereas the LPG sector has been kept as second priority after fertilisers, petrochemicals are considered non-core sector, though the usage of higher fractions of gas in petrochemicals and the LPG sectors is similar," it said.