Gas shortage to hit steel cos
April 12: The balance sheets of the steel, petrochemical units and refineries are likely to take a knock following the curtail in supply of natural gas to these units by Reliance Industries. RIL has drastically reduced its production of gas from 61.5 mmscmd last year to 47.5 mmscmd this year and has since July last year imposed a pro-rata cut in supplies to all its customers including fertiliser and power firms. The government has, however, asked RIL to first supply the fertiliser and power units the total quantity it had agreed to on a priority basis and the remaining can be given on a pro rata basis to the other sectors.
The situation is indeed serious for the steel, petrochemical and refineries and to a lesser extent for the fertiliser and power plants that are at the mercy of RIL for gas. The stock market adviser, Mr S.P. Tulsian, said to the extent that these companies will have to use other sources of energy that are more expensive, they will face pressure on costs. A source close to the oil and gas ministry said that RIL has to complete drilling in 22 wells by April 30, but have so far completed only 18 wells.
Even among the 18, they have for some reason not yet connected the production from two wells to the network that brings the gas onshore. They recently completed drilling in two wells but they too have not been connected. The ministry is reportedly at a loss to understand this situation that has arisen. Sources said that after April 30 the situation will be clearer and the government will consider some action after that.
Kotak institution research in a recent note on the energy situation, noted that the recent supply problem at RIL’s KG Basin D-6 block and limited progress in other blocks have deflated the India gas story that had looked very promising just a few years back. In fact, the plan to shift from coal to gas in the case of power plants has gone for a toss with the constraints in supply of gas. Kotak has also given a ‘reduce’ or ‘sell’ rating to gas players. It said they see a significant downside risks to the earnings of GAIL, GSPL and PLNG from lower than expected supply of domestic and imported LNG. The reasons for this is that the infrastructure has gone ahead of supply. This means under-utilisation of downstream assets impacting companies’ earnings.
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