With LNG imports hit, Govt prioritises gas allocation; top priority to household piped gas, CNG, LPG production

The MoPNG order lists four priority categories that shall receive, subject to availability, natural gas in varying quantities based on their average gas consumption levels of the past six months. The top priority category, which will receive 100% of the average gas consumption of the last six months, include domestic PNG, or gas supplied to households, CNG for transportation sector, natural gas used for LPG production, and gas consumed for essential pipeline operations. Apart from being produced from crude oil, LPG is also extracted from natural gas. The second priority category, according to the order, is fertiliser units, which will receive 70% of their average gas consumption of the past six months.

“The supply of natural gas to the fertilizer plants shall ensure seventy per cent of their past six month average gas consumption, subject to operational availability: Provided that the units shall not use the gas supply for any other purpose except in the production of fertilizers and a certificate to this effect shall be furnished to the Petroleum Planning and Analysis Cell (PPAC)…through the Ministry of Fertilizer: Provided further that allocation to a particular unit may not be diverted to any other unit,” the MoPNG order said.

The third category includes “tea industries, manufacturing and other industrial consumers supplied through the national gas grid”, for which supply will be maintained at 80% of their six-month average consumption. In the fourth category are commercial and industrial consumers of city gas distribution companies; they will get 80% of their past six-months average gas use. Public sector gas major GAIL will be managing the supplies of natural gas for the purpose of this order.

India depends on LNG imports to meet around half of its natural gas requirement of around 190 million standard cubic metres per day (mscmd), and over 50% of those LNG imports come from countries like Qatar and the UAE through the critical chokepoint of Strait of Hormuz, where maritime traffic has been effectively stopped for 10 days now. According to industry estimates, volumes coming via the Strait account for roughly 30% of India’s overall gas consumption.

The crisis has hit LNG supplies to India, prompting the government to take emergency measures to ensure continuous supplies to sectors that need them the most. Indian oil and gas companies are also scouting for LNG and LPG cargoes from the spot market and have managed to secure some cargoes, sources indicated. LNG and LPG from other source markets continue to come in. In LPG, India’s reliance on West Asia is even more acute; the country depends on imports to meet around 60% of its LPG requirement, over 80% of which comes through the Strait of Hormuz.

With Iran warning vessels to not transit through the Strait of Hormuz, and even hitting a few vessels that were passing through the waterway, there is an effective halt in maritime traffic through the Strait with most trading houses, insurers, and vessels loath to get involved in the prevailing extremely high-risk environment. The Strait of Hormuz—the narrow waterway between Iran and Oman that connects the Persian Gulf with the Gulf of Oman and the Arabian Sea—handles approximately one-fifth of global liquid petroleum consumption and global liquefied natural gas (LNG) trade.

Amid the conflict in West Asia, LPG stocks in India are relatively lower than oil, petrol, and diesel—which are estimated to be sufficient for six-eight weeks—and alternative suppliers are in faraway geographies like North America. The government has taken measures to ensure uninterrupted supplies to households. The minimum waiting period for booking a domestic LPG cylinder refill increased from 21 days to 25 days to prevent hoarding and creation of artificial scarcity in the market.

LPG supplies to households are being prioritised over commercial consumers to ensure no shortage of cooking gas in homes; India has over 33 crore domestic LPG consumers. This has led to some supply disruption in the commercial LPG segment—hotels and restaurants, for instance—and the MoPNG has formed a panel to consider requests from commercial consumers for LPG allocation. The government also invoked emergency powers derived from the Essential Commodities Act to direct Indian refiners to maximise LPG production and ensure that all the gas is supplied solely to domestic LPG consumers and not used to produce petrochemicals.

According to sources in the government, there has been a 10% increase in domestic production of LPG due to such measures. “When there is a war situation, and there is a choice between domestic consumers (households) and commercial consumers, then the government’s priority has to be domestic consumers,” said a senior government official. Sources added that no domestic LPG distributorship is dry in the country, with LPG disbursement levels at 60 lakh cylinders a day, unchanged from the pre-conflict days.

Reacting to the government’s orders on maximization of LPG production and supply of natural gas to priority sectors, private sector refining and petrochemicals giant Reliance Industries (RIL) said that it is fully compliant with the government’s directions.

“Reliance Industries is taking proactive steps and in line with the Government guidelines, to maximize LPG production from our refining and petrochemicals complexes at Jamnagar — the world’s largest integrated refining hub. Our teams are working around the clock to optimize refinery operations and enhance LPG output so that supplies to the domestic market remain stable and reliable,” RIL said in a statement.

“At the same time, natural gas produced from the KG-D6 Basin will be diverted to support supply to priority sectors, in line with national energy priorities and Government guidelines…We will continue to work closely with the Government of India and remain fully compliant with all national guidelines and allocation priorities, ensuring that energy supplies reach the sectors and communities that need them the most,” it added.