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Reliance Industries on Monday signed gas sale agreements with steel makers including Essar Steel and Ispat Industries for supplying 3.75 mmcmd of natural gas from its offshore Krishna Godavari-D6 basin.
The agreement, which will be reviewed at the end of five years, will boost profitability of the steel firms who had been buying expensive LNG or naphtha to meet feedstock shortage at their plants, a senior official said.
The ministry of petroleum and natural gas had last week asked Reliance to sell natural gas to steel firms like Essar, Ispat and Vikarm Ispat to help the nation's most prolific gas field to produce at optimum level.
As per the Gas Sales and Purchase Agreements, Essar will get 2.86 million standard cubic meters per day of gas, Ispat 0.53 mmcmd and Vikram Ispat the remaining 0.36 mmcmd at government-approved rate of $4.20 per mmBtu.
"We had identified sectors that would consume the initial 40 mmcmd output from KG-D6. But some of them like CNG supply projects in cities are unable to take their entire allocation and that is now being reallocated to steel firms," a senior official said.
Reliance is currently restricting output from KG-D6 to 28 mmcmd as not all of the power and fertilizer customers identified by the government are taking their full quota of allocation.
The official said after power and fertiliser, 5 mmcmd gas from KG-D6 was allocated for city gas projects but only 1.1 mmcmd can immediately be taken. The rest is now being distributed among steel firms.
The official said the allocation has been made in accordance with the Empowered Group of Ministers' decision on April 9 to give any unutilised KG-D6 gas to steel plants, which are currently not being supplied their full share of administered price fuel.
Currently, Reliance can produce close to 40 mmcmd but is restricting output to 28 mmcmd in absence of offtakers. Out of the 14.97 mmcmd allocated to fertilizer sector, only 13 mmcmd is being drawn because of shutdown at some urea making plants.
Similarly, of the 17.99 mmcmd earmarked for power, only 15 mmcmd is being sold while two big customers NTPC and Dabhol are yet to begin drawing the fuel.
After gas-based steel plants, allocations would also be made to existing gas-fired power plants and to other power plants, including captive power plants, depending upon the availability of the unutilised gas, he said.
Essar Steel's Hazira plant in Gujarat was allocated 3.11 million cubic meters per day of gas from Oil and Natural Gas Corporation fields that is sold at regulated rates of around $2 per million British thermal unit. But it currently gets only 0.66 mmcmd due to declining output of regulated gas.
Sources said plants like Hazira would get gas that fertiliser, power, LPG extraction plants or city gas projects, who have been given priority of usage of KG-D6 gas in that order, are unable to use.