OREANDA-NEWS. July 18, 2011. The oil ministry ordered RIL to cut supplies in proportion to allocations made to units after production from the Andhra offshore field dropped a tad below 50 mcmd from over 60 mcmd.NEW DELHI: India's biggest refiner-marketer, IndianOil Corporation, has warned the government that reduction in gas supplies from RIL's showcase Andhra offshore field may spark shortage of diesel and force imports to bridge the gap.

The state-run company has told the oil ministry that the reduction in gas supplies may also render infructuous the huge investments made in upgrading refinery systems for using gas as fuel and considerably raise emission levels of greenhouse gases, responsible for global warming. Reliance cut supplies to non-core industries such as refineries, petrochemicals and steel plants from May 9 under government orders. The ministry ordered RIL to cut supplies in proportion to allocations made to units after production from the Andhra offshore field dropped a tad below 50 mcmd (million cubic metres per day) from over 60 mcmd.

IOC executives said the cut in gas supply would force the company to use about 200,000 tonnes of diesel as substitute fuel at its Gujarat refinery "with resultant reduction in supply to market". "Shortfall in HSD (diesel) from refinery has to be compensated through imports to meet market demand," a senior executive said.

IOC reckons it would lose Rs 460 crore annually on burning diesel as a replacement fuel, which would also reduce 1.4% of distillate yield from its Gujarat refinery. The Gujarat unit is IOC's third major refinery after Panipat and Mathura plants.

"Natural gas from domestic sources is not only cheap but the price is also stable. As against this, international price of LNG (gas imported in ships), being very volatile in nature, using the imported gas as an alternative to RIL gas may lead to huge financial loss to refineries at times," the executive said.

The government had allocated 1.6 mcmd of gas for IOC's refineries. It also earmarked another 1.9 mcmd on fallback basis (if some unit for any reason does not use the quantity allocated to it). But the company was able to ink purchase agreement for only 0.9 mcmd to Gujarat refinery since RIL's output dropped.