Reliance Industries and GAIL on Thursday signed a gas swap deal to fuel power plants in the country's south, a move that could curb the power deficit in peak summers and overcome pipeline constraints.
The country presently has a total installed power generation capacity of 164 gigawatts (GW), and aims to raise it to 187 GW by the end of March 2012, a modest target given a 12% peak hour power shortfall that crimps its near 9% economic growth.
According to the deal, Reliance will supply nearly 2.6 million cubic metres a day (mmscmd) of gas, currently used by customers in western Gujarat, to power producers in southern Andhra Pradesh from Friday, oil minister Jaipal Reddy said.
In return, state-run GAIL will transmit an equal amount of Liquefied Natural Gas (LNG) to customers in Gujarat, Reddy said, adding that the move would lead to additional generation of about 600 megawatt of power.
The move to swap gas was considered as Andhra Pradesh did not have pipeline connectivity to LNG plants in Gujarat.
Domestic supply of natural gas has risen significantly after Reliance started pumping from its deep-sea D6 block in Andhra Pradesh in 2009.
Gujarat customers would continue to pay the price of D6 gas, while Andhra Pradesh power utility will pay arate equivalent to imported LNG.
GAIL Chairman BC Tripathi said his firm would supply spot LNG to Gujarat based customers. GAIL has signed a deal to import 0.5 million tonnes of LNG from Marubeni.
The government is actively encouraging the use of natural gas to reduce reliance on costly oil imports which account for over two-thirds of the oil consumed in the country.
Andhra Pradesh has gas-based power generation capacity of 2,700 MW, but due to inadequate pipeline infrastructure produces only about 1900 MW.