Decision regarding sale of Natural Gas by NELP contractors and order of Priority to supply gas from RIL’s kg D6 field

Empowered Group of Ministers (EGoM) had been constituted to examine issues relating to pricing and commercial utilization of gas under New Exploration Licensing Policy (NELP). The issues relating to pricing were decided earlier by the EGoM. The EGoM meeting was held on 28.5.2008 to deliberate upon issues pertaining to commercial utilization of natural gas.

The following guidelines for sale of natural gas by NELP contractors have been approved:-
i) Contractors would sell gas from NELP to consumers in accordance with the marketing priorities determined by the Government. The sale would be on the basis of formula for determining the price as approved by the Government.
ii) Consumers belonging to any of the priority sectors should be in a position to actually consume gas as and when it becomes available. So the marketing priority does not entail any ‘reservation’ of gas. It implies that in case consumers in a particular sector, which is higher in priority, are not in a position to take gas when it becomes available, it would go to the sector which is next in order of priority.
iii) In case of default by a consumer under a particular priority sector and further in the event of alternative consumers not being available in the same sector, the gas will be offered by Contractor to other consumers in the next order of priority.
iv) The priority for supply of gas from a particular source would be applicable only amongst those customers who are connected to existing and available pipeline network connected to the source. So if there is a marginal or small field that is not connected to a big pipeline network, then the Contractor would be allowed to sell the gas to customers who are connected or can be connected to the field in a relatively short period (of say three to six months).
v) The priority would not impact the process of price discovery whenever it is undertaken, as all the customers would participate in the price discovery process (as already decided by the EGoM) and would be eligible for utilizing natural gas subject to priority.
vi) Since the supply situation is expected to increase substantially in the near future in view of increased availability from domestic sources and imported gas (LNG/ transnational pipelines), these guidelines would be applicable for the next 5 years after which they would be reviewed.

The production of natural gas from RIL's KG D6 field is expected to commence from September 2008 and will initially be about 25 mmscmd. It is further expected that the production would gradually increase to 40 mmscmd by March 2009. The EGoM decided that this gas should be supplied in the following order of priority:
i) Existing gas based urea plants, which are now getting gas below their full requirement, would be supplied gas so as to enable full capacity utilization.
ii. A maximum quantity of 3 mmscmd would be supplied to existing gas based LPG plants.
iii. Up to 18 mmscmd natural gas, being the partial requirement of gas-based power plants lying idle/under-utilized and likely to be commissioned during 2008-09, and liquid fuel plants, which are now running on liquid fuel and could switch over to natural gas, would be supplied to power plants.
iv. A maximum quantity of 5 mmscmd would be made available to City Gas Distribution projects for supply of Piped Natural Gas (PNG) to households and Compressed Natural Gas (CNG) in transport sector.
v) Any additional gas available, beyond categories i) to iv) above, would be supplied to existing gas-based power plants, as their requirement is more than 18 mmscmd.

The marketing freedom given to Contractors under NELP would be subject to the order of priority given in para 3 above and the guidelines given in para 2 above.

The decision would benefit 22 natural gas-based urea plants in the country, as natural gas is the ideal feedstock for production of urea and, due to the shortfall in gas availability in the country, these plants have to use costlier alternate fuels like naphtha and fuel oil. Supply of gas for production of LPG would be greatly beneficial as about 25% of our present requirement is met by imports. The LPG requirement in the country is expected to further go up in the coming years because of continuing enrolment. Supply of natural gas to power plants would result in utilization of idle assets and cheaper incremental cost of power on account of better utilization of existing assets. Gas-based power plants handle peak loads very well and they are also preferred for environmental considerations. Supply of city gas as a clean and cheap fuel for use of domestic purpose has become a vital necessity for the urban dwellers. Presently the country has 12 cities with more than 25 lakhs population. It is proposed that all cities with population of more than 25 lakhs will be connected within 3 years. Further, cities with population between 10 to 25 lakhs will be covered in a phased manner.