RIL to be free to price gas for non-core users

Reliance Industries Ltd. | Refineries | Oil & Gas | BSE: 500325 | NSE: RELIANCE

26 May 2011 Evaluate

The government has decided to supply gas at regulated rates only to a few top-priority consumers—a move that will effectively grant Reliance Industries, or RIL, substantial pricing freedom and boost the government’s share of revenue from the field when output rises. The new system is being worked out by the government in response to the steep fall in output from RIL’s KG-D6 gas field. The shortfall has prompted the oil ministry to order Reliance to cut supplies to “non-core” sectors such as steel to help power and fertiliser plants get normal supply.

Steel companies have already challenged the order in court, but the proposed new pricing policy will make sure that such customers pay market rates for gas when it is available. RIL wants to monitor data from the D6 reservoir for a few quarters before it takes steps to ramp up output to normal. In the new pricing regime, gas at the regulated price of $4.2 per unit would be supplied only for use in fertiliser units, subsidized cooking gas, city gas networks and power stations that do not indulge in lucrative open-market sale.

A steep decline in RIL’s KG-D6 gas output had forced the government to restrict its supply to priority sectors and had also raised the question as to why cheap gas should be given to companies for maximizing their profits. The RIL-operated block’s current output is about 48-49 million standard cubic meters per day (mmscmd), which is well short of 69.8 mmscmd as per the government-approved plan. The oil ministry has the authority to restrict gas supply to non-core industries immediately, but the issue of gas prices can be taken up only by the empowered group of ministers (EGoM).

The EGoM, which has the final word on gas pricing and its utilisation, had chalked out priority consumers for RIL’s KG gas and fixed its price at $4.2 per unit for five years that would expire in 2014. The situation is alarming as RIL has indicated further decline in gas output of 5-6 mmscmd by 2012-13, when it was expected to achieve peak output of 80 mmscmd. The government has so far made firm allocation of 63.3 mmscmd of KG-D6 gas as per national priority, but Reliance had contracted about 57 mmscmd to the government-identified customers.crack crack

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