Gas supplies of 5.4m cm/d held hostage by oil ministry

Vol 13, PW 6 (27 Aug 09) Midstream & Downstream

Anxious gas customers in Gujarat are being denied supplies totalling 5.4m cm/d promised by ONGC to GAIL, but blocked by the oil ministry.

In our last issue we reported how the ministry was unhappy with ONGC’s decision to begin supplying 3m cm/d of gas to GAIL from its â€کC Series’ gasfields offshore Mumbai. This ban has now been extended to include 1.5m cm/d of gas from the Vasai gasfield, also offshore Mumbai, and 90,000 cm/d from onland fields in Gujarat.

Industries in Gujarat have been hit hard by the ban. Take Piramal Glass, a leading manufacturer of amber and flint bottles for the cosmetics sector, with factories at Kosamba and Jambusar.

Piramal already gets 50,000 cm/d supplies from GAIL, and signed up for another 15,000 cm/d on August 4. But now it will have to wait for the ministry to relent.

Several other Gujarat-based factories that signed agreements with GAIL this month are also hit. “ONGC was to start supplies of 1m cm/d C-Series gas from August 10 but pulled out at the last minute, thanks to the oil ministry,â€‌ confirms a source.

“Now the ministry has also stopped Vasai and Gujarat onshore gas from coming.â€‌ Officially, the oil ministry’s position is simple.

In a letter to ONGC on May 22, and a subsequent reminder on June 19, it raised two formal objections. First, the ministry demanded to know why ONGC did not apply for mandatory government clearance before agreeing the sale to GAIL.

Second, it wanted to know why ONGC did not disclose the formula used to reach the â€کmarket rate’ sale price of $5.5/mmbtu for Vasai gas and $4.75/mmbtu for onland Gujarat gas. Analysts are bemused why it took three months for the ministry’s displeasure to filter through to ONGC and then to GAIL.

Early this month, GAIL began signing GSAs with customers like Piramal Glass, only to tell them last week that they wouldn’t be getting the additional gas after all!