Petroleum Ministry may block domestic gas supply for merchant power plants

• The Petroleum Ministry has proposed that domestically produced natural gas should not be supplied to power plants that do not sell electricity to state-run power utilities at regulated rates. “There is no proposal before the government to ban gas supply to merchant power plants,” the Oil Minister, Mr S. Jaipal Reddy, said in a written reply to a question in Lok Sabha. “However, there is a proposal in which domestic gas will be available only to those power plants that supply electricity to state power utilities under a Power Purchase Agreement (PPA) at regulated rates,” he said. Domestic natural gas is available at one-third the price of imported LNG.

• Against the demand of 230 million cubic meters per day, domestic production amounts to 142 mmcmd, including about 42 mmcmd from Reliance Industries’ eastern offshore KG-D6 fields. KG-D6 gas and other domestically produced gas is priced at $4.20 per million British thermal units, while imported gas in its liquid form (called liquefied natural gas, or LNG) costs upward of $13-14 per mmBtu. “In view of the scarcity of domestic gas, the current and future allocations of domestic gas will be subject to the condition that the entire electricity produced from this gas shall be sold under long-term Power Purchase Agreements to the grid/distribution companies at regulated tariffs approved by the regulator(s),” an Oil Ministry official said.

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