OREANDA-NEWS. March 22, 2011. In a major policy shift, Indian government granted permission to private giant Reliance Industries to swap gas from its offshore KG-D6 fields with imported LNG for supplying it to fuel-starved power plants in Andhra Pradesh.

In a complex swap-arrangement involving various stakeholders, state-run gas utility GAIL will divert 2.594 million cubic meters of natural gas a day that it gets from Reliance's eastern offshore KG-D6 fields for production of LPG to power plants in Andhra Pradesh, Oil Minister S Jaipal Reddy told reportershere.

GAIL's deficit will be made up by imported liquefied natural gas (LNG). But the seven private sector power plants, which will benefit from the swap agreement, will have to pay the actual imported cost of LNG, which may be over USD 10 per million British thermal unit. KG-D6 gas is priced at USD 4.205 per mmBtu.

"Today Andhra Pradesh is facing a severe power shortage. This swap will mean generation of 600 MW of power additionally in Andhra Pradesh through increase in gas supply," Reddy said. Andhra Pradesh has 2,700 MW of gas-based power generation capacity but currently produces only 1,900 MW.

Even at the USD 10 per mmBtu price of gas, electricity generated would cost about Rs 6 per unit as against Rs 11-14 a unit at which power is currently available in the southern grid. "Generation of the electricity through gas would result in savings of approximately Rs 250 crore to the state as compared to generation from naphtha," Reddy added.

GAIL currently sells rich gas -gas containing LPG -sourced from domestic fields and imported LNG to industries. This is considered an economic waste as the user industries burn the fuel without extracting LPG. The company wants to first extract LPG at its extraction plants and then sell the gas to industries, officials said, adding that the process would lead to at least five per cent shrinkage in volume.

This shrinkage in volume is being made up by allocation of 2.594 mmscmd from Reliance's Bay of Bengal fields. GAIL will divert this 2.594 mmscmd of allocation to power plants in Andhra Pradesh and an equivalent volumes would be sold to consumers in west and north, officials said.

KG-D6 gas is currently transported from Kakinada on the Andhra coast through a 1,395-km long pipeline to Barunch in Gujarat and then through Hazira-Vijaipur-Jagdishpur and Dahej-Vijaipur pipeline to consumers. Reliance currently produces about 51 mmscmd of gas from the KG-D6 fields.

Of this, 14 mmscmd of gas is sold to fertiliser plants, 24 mmscmd to power plants and the remaining 13 mmscmd to other sectors like sponge iron plants, LPG, city gas distribution (CGD), petrochemical plants and refineries.