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Govt for RIL cutting gas output to enable imported LNG sale

business Updated: May 04, 2010 21:24 IST

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The government is believed to have suggested to Reliance Industries to cut gas output from its eastern offshore KG-D6 fields so that imported fuel stocks can be sold in the country.

Petronet LNG Ltd, which imports gas in its liquid form (liquefied natural gas) from Qatar on a long-term contract, is
facing a glut after three fertiliser plants that used LNG as feedstock shut down for maintenance and a power plant owned by NTPC tripped.

Also, NTPC's Dadri plant is to undergo a shutdown from tomorrow.

According to the minutes of a meeting held in Oil Ministry last week to decide how to clear the stocks, the
Ministry is understood to have favoured a cut in domestic gas production to accommodate the expensive LNG.

"Reliance may examine whether it would be possible to cutback the production from KG-D6 fields by some amount for a short period," the meeting decided, according to the minutes.

The schedule for outgo of gas from Petronet's Dahej import terminal in Gujarat was less than the inflow, creating
a backlog of 75 million cubic meters or 96 per cent of inventory limit.

The problem has been complicated by Petronet's decision to lease out Dahej terminal to Gujarat State Petroleum Corp
(GSPC) for import of 9 cargos or shipload of LNG even though state gas utility GAIL India did not have capacity in pipeline to evacuate any gas beyond the domestic production and already contracted long-term LNG.

The Ministry, however, did not ask Petronet to defer import of LNG - Petronet's contract with RasGas of Qatar has
provisions to defer any cargo(s) and take their deliveries later during the year.

By asking Reliance to cut output, the ministry hopes it can push the imported gas to customers using KG-D6 gas.

Industry observers expressed surprise at the decision saying imported expensive gas was being prioritised over
cheaper domestic gas. "The priority should be to use cheaper fuel first and use expensive gas later," an official said.

Petronet's imports from Qatar cost USD 5.42 per million British thermal unit (ex-Dahej), while KG-D6 gas is priced at
USD 4.20 per mmBtu.

The April 30 meeting in the ministry also decided to set up "a coordination mechanism" between the domestic producers
and Petronet so that commitment to buy overseas LNG is met.

Power and fertiliser plants prefer using KG-D6 gas as feedstock as it is not only cheaper but Reliance offers better
commercial terms.

Sources said just before Reliance was to begin gas output from KG-D6 a year ago, the Ministry made key power and
fertiliser plants to enter into a 10-year agreement to buy expensive LNG from Petronet on a take-or-pay commitment (take gas or pay for it).