Fresh gas allocations will not be made to steel, refinery, petrochemical and LPG units

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in the next two years if the oil ministry’s proposal is approved by the empowered ministerial panel led by finance minister Pranab Mukherjee.

The oil ministry has suggested that gas should be allocated only to power, fertilisers and city gas distribution units till RIL, ONGC, and Gujarat State Petroleum Corporation start pumping in more gas.

A final call on the issue will be taken by eGoM set to meet shortly.

“The three sectors –– power, fertiliser and city gas –– have been identified as priority sectors. It has been proposed to allocate gas to these sectors only till more gas is produced,” an oil ministry official said. “The eGoM will take the final decision,” he added.

“There will be scarcity of gas even if allotment is made to these three sectors,” he said. The oil ministry foresees additional demand for 37 mmscmd for consumption by power and fertiliser units and city gas distribution by 2012. Refineries and petrochemicals have indicated demand for 20.35 mmscmd and 0.2 mmscmd of additional gas, respectively, in 2010-11. The steel sector has asked for 0.86 mmscmd of excess gas supply.

As against this, the ministry expects that 31 mmscmd of additional gas will be available from Reliance Industries’ KG-D6 block and Gujarat State Petroleum Corporation’s Deendayal west fields by 2012-13. State-run explorer ONGC will commence production of natural gas from its new marginal fields. Production from these new marginal fields is expected to be 8.93 mmscmd by 2011-12 and 13.38 mmscmd by 2012-13.

Presently, 60 mmscmd is being churned out from KG D6, the most prolific Nelp block which started production recently. Gas is being supplied to priority sectors identified by the government under its gas utilisation policy.

Till now, the eGom has allocated 83.88 mmscmd of gas to various sectors, of which 63.30 mmscmd is on firm basis and 20.1 mmscmd is on fall back arrangement.

Gas sale purchase agreements have been signed for 70.317 mmscmd of gas sourced from D6 block in the KG basin operated by RIL. Of these, 55.507 mmscmd is on firm basis, while 14.81 mmscmd is on fall back criteria.

Oil ministry has also asked the eGom to put in place a monitoring mechanism for gas offtake by priority consumers. “We have suggested that if a consumer is not able to draw designated supply, the allocation should be cancelled,” the official said.

Official data released last week said natural gas production in the country grew 6.5 per cent to 4.35 billion cubic metres from a year ago.

Natural gas sourced from imported LNG costs nearly $9-10 per mBtu on spot. “Gas-fired power plants using domestically produced gas could be competitive with coal (full cost of Rs 3.1 per kWh) in north and central India. However, plants based solely on LNG are uncompetitive, at Rs 4.4 per kWh,” said a survey by McKinsey & Company.

“LNG-fired plants would face despatch pressure by 2015 as the projected base load of 146 GW will be met through cheaper power from coal, hydel and nuclear power,” said the McKinsey study.