OREANDA-NEWS. April 11, 2011. Reliance Industries may have to stop natural gas supplies to steel plants, petrochemical units and refineries if it is to implement a government order asking it to first supply fuel from its eastern offshore KG-D6 fields to priority sectors like fertiliser and power.

With output from KG-D6 fields dropping by over 20 per cent, a worried government has asked Reliance to first meet all the contracted demand of fertiliser units, plants extracting LPG from natural gas, power firms and city gas distributing companies selling CNG to automobiles, official sources said.

Reliance produced 47.5 million standard cubic meters of gas per day from KG-D6 fields in the week ended March 26, down from 61.5 mmscmd output achieved a year ago. Sources said the company has since July last year imposed a pro-rata cut in supplies on all its customers, including fertiliser and power firms. A petroleum ministry order has now instructed Reliance to supply gas to priority sectors in full and if there is any gas left over it should be given to other sectors on pro-rata basis.

Reliance has so far signed up customers for 60.76 mmscmd of gas while production is less than 48 mmscmd. The government had accorded highest priority to fertiliser plants followed by LPG extraction units, power plants and city gas distribution projects in allocating KG-D6 gas. Sixteen fertiliser plants have been allocated 15.35 mmscmd of KG-D6 gas on firm or permanent basis while 27 power plants in public and private sector have been allocated 29 mmscmd.

A sizeable 7.79 mmscmd of gas has been signed up with steel producers while LPG plants have got 2.59 mmscmd. Refineries including that of Reliance have been allocated 3.46 mmscmd, city gas projects 0.65 mmscmd and petrochemical plants the balance 1.92 mmscmd.

With fall in production, supplies to all these customers have been cut on a pro-rata basis. But the new directive would mean that the gas first goes to priority sector. The priority sector allocation totals 47.59 mmscmd, leaving almost nothing for steel plants, refineries and petrochemical units, sources said adding Reliance may have to stop supplies to these if the government order is implemented.

Reliance has been asked not to cut any of the committed quantities to the priority sector but in case the production falls further, the company may impose pro-rata cuts in the following order for priority: CGD (domestic and transport), power, LPG and fertiliser sector.

Sources said the fall in production of gas from KG-D6 fields has meant rise in government subsidy outgo as the shortfall in cheaper feedstock in fertiliser plants is now being replaced by costlier liquid fuels. Also, less gas to power plants has resulted in lower electricity generation.