Sponge iron factories drop R-LNG for cheap D6 gas

Vol 13, PW 5 (13 Aug 09) Midstream & Downstream

Three sponge iron producers have completely stopped using R-LNG since D6 gas began flowing to their factories.

“Our entire gas shortfall has been wiped out,â€‌ confirms a source at Ispat Industries, “thanks to D6 gas!â€‌ Ditto for Essar Steel! Ispat and Essar are two of three steel companies that signed contracts in June with Reliance for a combined 3.75m cm/d gas for five years to 2014 at the government set price of $4.20/mmbtu. Welspun Maxsteel (formerly Vikram Ispat) was the third.

All three companies are dependent on gas, as it is the only feedstock that can convert sponge iron to steel. Essar and Welspun began receiving D6 gas on July 1; Ispat began receiving supplies a month later on August 1.

Before D6 gas Ispat bought around 530,000 cm/d spot or short-term R-LNG, mostly from the Hazira LNG import terminal run by Shell and Total, but also from the Dahej terminal run by Petronet-LNG. This R-LNG was delivered to Ispat’s factory at Raigad in Maharashtra through GAIL’s Dahej to Dabhol pipeline, which passes through Hazira and Uran.

Faced with crippling shortages of gas, Ispat used R-LNG to cover the shortfall between the domestic subsidised gas it was originally promised (â€کallocated’) by the government and the amount it actually received from GAIL. “R-LNG cost us $7/mmbtu delivered at the factory gate,â€‌ adds Ispat, “but D6 gas is cheaper at $6/mmbtu.

â€‌ Welspun also used the Dahej to Dabhol pipeline for R-LNG to meet similar gas shortfalls at its Raigad factory. Essar, which operates a sponge iron factory at Hazira, has a subsidised gas allocation of 3.11m cm/d but receives only 700,000 cm/d, hardly enough to generate 5.1m t/y production.

Like Ispat and Welspun, Essar depended on R-LNG to fill the gap – but no longer because it now receives 2.86m cm/d of D6 gas. Welspun receives 360,000 cm/d and Ispat receives 530,000 cm/d.