NTPC rejects Reliance offer of cheap D6 gas for Dabhol

Vol 12, PW 1 (29 May 08) Midstream & Downstream

Can you imagine anyone in India turning down inexpensive domestic natural gas when landed spot LNG costs about $16/mmbtu Well, NTPC has done just that by blocking a Reliance offer to supply KG gas from its D6 discovery to the Dabhol power plant in Maharashtra.

Together with GAIL (28%) and MAHAGENCO (15%), NTPC (28%) is a key stakeholder in Ratnagiri Gas & Power, set up by the government on July 8, 2005 to oversee the revival of the 2150-MW formerly Enron-owned Dabhol power station and LNG terminal. A source tells us that around two months ago Reliance wrote to GAIL offering 8m cm/d for Dabhol at a fixed term of five years at the mouth-watering oil ministry fixed price of $4.22/mmbtu at the Kakinada landfall point.

At Dabhol the delivered price of D6 gas would have been under $6/mmbtu, including transportation and taxes. “This quantity would have been enough not just for the two generating units now running,â€‌ we hear.

“But even for the third unit which comes on stream later this year.â€‌ GAIL was understandably excited at the offer and was eager to sign up fast.

More excited was Maharashtra state-owned MAHAGENCO, which is under pressure to supply cheap electricity to consumers and is sole buyer of Dabhol output. Sadly, neither GAIL nor MAHAGENCO has the authority to take unilateral decisions about the Dabhol power plant.

That privilege rests with Ratnagiri Oil & Gas, their JV with NTPC. Soon after the Reliance proposal, Ratnagiri directors held a board meeting during which NTPC fiercely opposed taking any gas from Reliance and the proposal was quietly shelved.

NTPC representatives on the Ratnagiri board are director finance NK Singhal and director operations Chandan Roy. In its offer Reliance proposed D6 gas to Dabhol from August or September 2009, when supplies from Petronet-LNG through the newly laid Dahej to Uran pipeline will dry up.

These are enough to fire only two of the three generating units at the power station but later this year, UK-based EPC contractor Whessoe hopes to have the LNG receiving facility at Dabhol ready.

LNG Summit