India's Steel Sector to Get Natural Gas from Reliance's Krishna-Godavari D6 Basin

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Researched by Industrial Info Resources (Sugar Land, Texas)--India's steel sector will be given preferential allocation of natural gas produced by Reliance Industries Limited (BSE:500325) (Mumbai) from its D6 offshore block in the Krishna-Godavari basin (KG-D6) once the initial production crosses 40 million metric standard cubic meters per day (mmscmd) of gas. This was decided by the Empowered Group of Ministers at a recent meeting on pricing and commercial utilization of gas under the New Exploration Licensing Policy.

The Ministry of Steel has been asked to submit a report providing details of the present allocation and estimated requirement of gas for future operations. The Krishna-Godavari basin has the country's largest discovered reserves of natural gas. Reliance Industries, which has a 90% stake in KG-D6, began producing natural gas from the field in April. The initial output was about 2.5 mmscmd, which is expected to increase to 40 mmscmd within four months and further to 80 mmscmd in a year. The power sector has been allotted 23 mmscmd of gas, and the fertilizer industry will receive 15.3 mmscmd of gas from the expected first phase production of 40 mmscmd of gas.

Essar Steel Limited (BSE:500627) (Surat, Gujarat), Ispat Industries Limited (BSE:500305) (Mumbai) and Vikram Ispat Industries Limited (Raigad, Maharashtra) are a few of the companies in India that use natural gas as feedstock to produce sponge iron and steel. The three firms jointly produce about 8 million tons per year of steel through the sponge iron technology. The gas-based process is used to produce sponge iron in the form of hot briquetted iron (HBI). Although the government has allocated 5.76 mmscmd of gas to the three companies, the firms currently receive only 23.42% of the reserved amount from Gas Authority of India Limited (BSE:532155) (GAIL) (New Delhi).

Essar Steel's gas-based HBI facility in Hazira, West Bengal, alone requires about 6 mmscmd of gas, for which it had signed long-term purchase agreements with GAIL and other public sector oil majors. However, Essar Steel has been receiving only 660,000 metric standard cubic meters per day instead of the agreed 3.11 mmscmd of gas supply from GAIL. Ispat Industries and Vikram Ispat have also been supplied only 40% of the assured gas supply.

The acute shortage in gas supply has adversely affected the operations of these steel manufacturers, forcing them to either cut output or switch to an alternate fuel. The key driver for using natural gas as a fuel in the steel making process is reduced emission of greenhouse gases, mainly methane and carbon dioxide. Natural gas has a comparatively higher hydrogen-to-carbon ratio than coal. Another benefit of using natural gas is in energy savings, which amounts to nearly 100 kilowatt-hours for every ton of liquid steel produced in Essar Steel's facility.

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