Reliance says no to gas supply contracts beyond 60 mmscmd

Reliance Industries has told the government that it will not sign contracts to supply gas from its KG-D6 fields beyond 60 million units a day as it may not be able to sustain higher production. The government has so far allocated about 64 million standard cubic metres per day (mmscmd) of output from the eastern offshore fields to consumers in the power, fertilizers, steel and refineries sectors.

Of this, RIL has so far signed or committed to sign agreements for supply of 57.8 mmscmd of gas and told the Oil Ministry at a review meeting last month that it can only sign contracts on a firm basis for another 2.2 mmscmd, an official said. "RIL does not want to sign and then fail on deliver," he said. "The company has told the government to choose users for another 2.2 mmscmd from the likes of Essar Oil's Vadinar refinery, who were allocated KG-D6 gas."

Essar Oil was allocated 0.6 mmscmd of gas on a firm basis, but the company has not yet signed a Gas Sales and Purchase Agreement (GSPA) with RIL, as its Vadinar refinery in Gujarat was not ready to receive gas from the field till recently. The official said RIL has told the Oil Ministry that it can presently sustain output of only 53-54 mmscmd from the Dhirubhai-1 and 3 fields in the KG-D6 block and 7-8 mmscmd 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 mmscmd, but it estimates this level of production can only be achieved by the end of this year or early next year. Oil regulator DGH has endorsed RIL's view on limitation of production, saying the output was in line with the approved Field Development Plan. According to the FDP, peak output of 80 mmscmd was envisaged in 2011 and is to last till 2016.

The official said customers with pending allocations are those who have not been in a position to take gas for a considerable period of time. It has been suggested that since there can be no reservation of gas, as stipulated by the Empowered Group of Ministers which framed the Gas Utilisation Policy, such allocations should automatically be deemed to have lapsed after a reasonable period. The Oil Ministry has so far not taken any view on this, he said. Of the current production, about 14 mmscmd is sold to fertilizer plants, 28 mmscmd to power plants and 10 mmscmd to petrochemical plants and refineries. The remaining seven mmscmd of gas was consumed by other sectors such as sponge iron plants, LPG, city gas distribution and the East-West pipeline.