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EGoM vetoes gas diversion from urea to power plants

Fearing a backlash from farmers, a high-powered ministerial panel on Wednesday rejected a proposal to cut natural gas supplies to urea plants and divert that fuel to power companies. Fertiliser plants will continue to enjoy top priority in receipt of scarce natural gas after an Empowered Group of Ministers (EGoM) headed by Defence Minister A K Antony turned down the proposal that would have resulted in a fall in urea production during the peak kharif season.

‘Today’s decision is that the requirement of fertiliser for the agriculture sector will be fully protected. While doing that, possibilities are being explored whether any additional gas can be made available to the power sector,’ said Oil Minister M Veerappa Moily after the EGoM meeting.
The ministerial panel, he said, would meet again on Monday to discuss the methodology of making available gas from other sources to the power sector in the short term and medium term. ‘The agriculture season is very good and we need to protect their requirement. At the same time, power should also get gas,’ he said.

The EGoM meeting was convened to consider abolishing the priority ranking in natural gas allocation so that the fuel currently consumed by urea plants can also be diverted to fuel-starved power plants. Currently, fertiliser plants consume all the 14 million standard cubic metres per day (mmscmd)
of gas produced from

Reliance Industries Ltd’s (RIL) eastern offshore KG-D6 fields. No gas flows to the 25 power plants that had signed up for 29.74 mmscmd of KG-D6 gas.
If the proposal for giving the power sector an equal footing with fertilisers would have been accepted, it would have meant gas supply to urea plants going down by 9.07 mmscmd, forcing an import of 4.54 million tonnes of urea at an additional subsidy burden of Rs 5,372 crore per annum.

The diversion would have meant gas supplies to power sector going up by 10.79 mmscmd, leading to an extra output of about 17,000 million electricity units per annum and saving in production cost of Rs 11,700 crore per annum.

Stating that the gas requirement of power plants too should be ensured, Moily indicated that untied fuel from fields of state-owned Oil and Natural Gas Corp (ONGC) can be committed to the sector. ‘We are making a strategy for making available gas (to the power sector). That strategy will be presented to EGoM on Monday,’ he said.

The EGoM meeting was called after the power sector pressed for abolishing the priority ranking, according to which natural gas is first given to urea manufacturing fertiliser plants, then to LPG units, followed by power plants, city gas, steel and refineries. The current priority ranking meant that when output from RIL’s KG-D6 fields started falling in 2011, supplies to refineries were cut first, then the steel and city gas sectors.

From November 2011 supplies to 25 power plants, which had signed for 29.74 mmscmd of KG-D6 gas, were pro-rata cut and this year completely stopped as output kept falling. From June 1, supplies to LPG plants, which had contracted 2.59 mmscmd of KG-D6 gas, too were stopped as the current production of just over 14 mmscmd was sufficient to meet the full requirement of the fertiliser sector only.

The EGoM was presented with three options — maintaining the status quo, giving equal priority to all core sectors of fertilisers, LPG, power and city gas distribution, or according fertiliser and power equal priority.
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