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UBS Investment Research
India Oil and Gas
Low KG D6 volumes: government response
Falling production: steel, refineries and petrochemicals worst hit
Volumes from KG-D6 have been falling. Currently, the government’s response to
a shortfall in production is designed for a short-term drop in production, whereby
sales cuts will be on a pro-rata basis for all customers. The government has
proposed a new response for a lower steady state of production. This could
negatively impact Reliance Industries (Reliance) in two ways: 1) lower revenue
from the E&P business; and 2) no upside from cheaper KG-D6 gas for the refining
and petrochemicals business.
Government issued an order proposing sector priorities for KG-D6 gas
If the order is implemented, then the government will ask Reliance to first meet all
the contracted demand for fertiliser units, plants extracting LPG from natural gas,
power firms and city gas distributing companies selling CNG to automobiles, in
that order. Within a sector, the gas sales cut will be on a pro-rata basis. The priority
sector allocation totals 47.59 mmscmd, close to current production levels, leaving
almost nothing for steel plants, refineries and petrochemical units.
Reliance has already signed GSPAs for 55.03 mmscmd
So far, Reliance has signed gas sales purchase agreements (GSPA) with fertiliser
plants, power plants, sponge iron plants, the LPG sector, as well as Reliance’s
petrochemical plant, refinery and city gas distribution companies. Gas sales for the
first week of April were about 50 mmscmd, out of which about 11 mmscmd was
sold to fertiliser plants, and 26 mmscmd to power plants. The remaining 13
mmscmd of gas was consumed by other sectors such as sponge iron plants, LPG,
city gas distribution, petrochemical/refinery and the RGTIL line for system use
gas.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Oil and Gas
Low KG D6 volumes: government response
Falling production: steel, refineries and petrochemicals worst hit
Volumes from KG-D6 have been falling. Currently, the government’s response to
a shortfall in production is designed for a short-term drop in production, whereby
sales cuts will be on a pro-rata basis for all customers. The government has
proposed a new response for a lower steady state of production. This could
negatively impact Reliance Industries (Reliance) in two ways: 1) lower revenue
from the E&P business; and 2) no upside from cheaper KG-D6 gas for the refining
and petrochemicals business.
Government issued an order proposing sector priorities for KG-D6 gas
If the order is implemented, then the government will ask Reliance to first meet all
the contracted demand for fertiliser units, plants extracting LPG from natural gas,
power firms and city gas distributing companies selling CNG to automobiles, in
that order. Within a sector, the gas sales cut will be on a pro-rata basis. The priority
sector allocation totals 47.59 mmscmd, close to current production levels, leaving
almost nothing for steel plants, refineries and petrochemical units.
Reliance has already signed GSPAs for 55.03 mmscmd
So far, Reliance has signed gas sales purchase agreements (GSPA) with fertiliser
plants, power plants, sponge iron plants, the LPG sector, as well as Reliance’s
petrochemical plant, refinery and city gas distribution companies. Gas sales for the
first week of April were about 50 mmscmd, out of which about 11 mmscmd was
sold to fertiliser plants, and 26 mmscmd to power plants. The remaining 13
mmscmd of gas was consumed by other sectors such as sponge iron plants, LPG,
city gas distribution, petrochemical/refinery and the RGTIL line for system use
gas.
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