Ruias-led Essar Steel has approached the government for adequate allocation of gas from state-owned oil companies for its 4.6 million tonne plant at Hazira.
In response to Essar Steel's request, Steel Minister Ram Vilas Paswan has shot off a letter to his counterpart in the petroleum ministry, saying the government should provide sufficient gas so that Essar Steel and other gas-based steel units do not suffer.
The industry, however, is apprehensive that with the steel sector not finding a place in the priority list, its demand may not be considered.
In a letter to Petroleum Minister Murli Deora, Paswan said Essar Steel's request for supplying gas resourced through Petronet and supplied under a pricing agreement from IOCL, BPCL and GSPCL may be considered.
Paswan's request for gas allocation to a steel mill comes at a time when over a dozen fertiliser units are facing problems due to a shortage in the supply of gas. Paswan also heads the fertiliser ministry.
The government has already decided to accord priority to fertiliser and power units for allocation of gas from the Krishna-Godavari basin. According to sources, the empowered group of ministers on gas, which met last week, has made it clear it will be able to provide additional gas to steel firms only after meeting the requirements of the power and fertiliser units.
Among the steel majors, Essar, Ispat and Vikram Ispat have gas-based units. Of their total earmarked quantity of 5.76 MMSCMD, the trio receives only 23.42 per cent of the gas from GAIL.
Essar Steel's total gas requirement alone is pegged at 6 MMSCMD, for which it has separate arrangements with GAIL and other public sector oil companies. However, against an agreement for 3.1 MMSCMD of natural gas from GAIL, it is currently receiving only 20 per cent (0.66 MMSCMD) of the earmarked quantity.
Making it even more difficult for the steel major, PSU oil companies like IOCL, BPCL and GSPCL have intimated it to curtail gas supply to 0.87 MMSCMD as against 3.1 MMSCMD from this month.
While IOCL plans to curtail the supply to 0.50 MMSCMD from 1.50 MMSCMD, BPCL is contemplating reducing the supply to 0.37 MMSCMD from 0.51 MMSCMD, while GSPCL wants to curtail the entire gas supply of 1 MMSCMD.
Essar Steel had entered into a long-term agreement for supply of re-gasified LNG with the three public sector companies in 2004, with a price fixed for five years based on the 25-year agreement signed between Petronet LNG and Ras Laffan, Qatar.
The agreement for the gas supply has expired in January and the steel major has not yet been able to renew the contracts.