According to official soures, the steel industry will be accorded priority in allocation of natural gas from Reliance Industries' Krishna Godavari basin once fuel production exceeds 40 mmscmd.

The decision to the effect has been taken by the Empowered Group of Ministers (EG0M) on pricing and commercial utilisation of gas under the New Exploration Licensing Policy they add.

Currently natural gas is being used as fuel in the production of steel by three manufacturers namely Essar Steel, Ispat Industries and Vikram Ispat. These manufacturers together produce over eight million tonnes of steel annually using the gas-based sponge iron technology.

The companies are currently sourcing their requirements through GAIL, which supplies around 23.42 per cent of the 5.76 mmscmd earmarked for them.

Essar Steel alone needs around six mmscmd of gas which is supplied under a separate arrangements with GAIL and other public-sector oil companies.

However, against an agreement for 3.1 mmscmd from GAIL, Essar is curretly being able to source only 20 per cent of the earmarked capacity. Similarly Ispat Industries is getting only 40 per cent of its allocations and Vikram Ispat too is in a similar position.

A shortage of natural gas has forced companies to cut back on production

Faced with a shortage of natural gas, the companies had either slashed their output or are using another mode of production.

Production of natural gas has started at D6 block of the KG basin and fertiliser and power companies have already got allocations.

India produces about 8.5 million tonnes of steel using the natural gas-based sponge iron technology. Persistent fuel shortages have forced the plants to run at around 25 per cent reduced capacity. In case of sponge iron the capacity utilisation is even poorer at around 50-55 per cent.