The government may give Rashtriya Chemicals and Fertilizers (RCF) natural gas from Oil and

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Natural Gas Corp's (ONGC) western offshore C-Series fields in place of cheaper KG-D6 gas it currently gets from Reliance Industries.

RCF currently buys 0.95 million standard cubic meters per day of KG-D6 gas at USD 4.205 per million British thermal unit for use as feedstock at its Trombay plant and another 2.1 mmscmd for its Thal unit.

The government plans to replace KG-D6 gas at these plants with the fuel being produced by ONGC from its C-Series fields which is priced at USD 5.25 per mmBtu, official sources said.

This follows government allocations far exceeding the supplies from KG-D6. While government has allocated users for about 64 mmscmd of KG-D6 gas, Reliance says it can currently produce only 60 mmscmd on sustained basis.

The mismatch between the allocation and actual production forced the government to switch users like RCF to ONGC, they said, adding ONGC is to produce between 2.1 and 3 mmscmd from the C-Series fields.

The delivered price of KG-D6 gas in the Trombay region is USD 6.52 per mmBtu (USD 4.205 per mmBtu plus USD 0.135 for marketing margin, USD 0.87 towards central sales tax of 2 per cent, USD 1.45 for transportation through East-West pipeline and USD 0.64 per mmBtu tariff of GAIL's pipeline).

On the other hand, the ONGC gas would cost RCF USD 6.76 per mmBtu (USD 5.25 plus USD 0.12 for marketing margin, USD 0.64 in transporation tariff through GAIL pipeline and USD 0.75 per mmBtu in local sales tax of 12.5 per cent).

Sources said while KG-D6 was an inter-state sales attracting a central sales tax of 2 per cent, ONGC gas sales would attract Maharashtra government sales tax.

The gas vacated by RCF would go to companies like Essar Oil's Vadinar oil refinery in Gujarat which has so far not been able to sign contract with Reliance for the 0.6 mmscmd that was allocated to it.

Sources said Relaince has told the Oil Ministry that it can at present 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 in 2012.

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.