Centre's order bars filing of cases over diverted LNG supplies
What's the story
The central government's Natural Gas (Supply Regulation) Order, issued on March 9 under the Essential Commodities Act, 1955, contains a clause that prohibits entities receiving diverted natural gas supplies from filing court cases against revised supply arrangements. The order permits the government to divert natural gas to priority sectors such as households and fertilizer production. It aims to prevent contractual disputes due to disruptions in liquefied natural gas (LNG) shipments through the Strait of Hormuz amid ongoing Middle East conflicts.
Compliance requirement
Order mandates acceptance of revised pricing, supply arrangements
The order requires entities receiving pooled gas to accept revised pricing and supply arrangements. It states, "The entities from priority sector to whom the pooled gas is supplied shall give an undertaking that the pooled price is acceptable to them." This clause seeks to avoid legal challenges over force majeure mitigation supplies, which could conflict with existing contracts.
Legal framework
What is Essential Commodities Act, why it matters?
The Essential Commodities Act, 1955 was enacted to prevent hoarding and black marketing during shortages of essential goods. It empowers the government to declare certain goods as "essential commodities" and regulate their production, supply, storage, transport and distribution. Petroleum products are included in this list, allowing the government to regulate energy supplies when necessary. The order relies on a 22-year-old Supreme Court judgment that held that natural gas falls under "petroleum and petroleum products."
Regulatory authority
What Section 3 of Essential Commodities Act states?
Under Section 3 of the Essential Commodities Act, the government can control production and supply, regulate distribution, impose stock limits to prevent hoarding, control storage and transportation. It can also direct producers to sell to specified sectors. These powers allow temporary overriding of market-driven allocation for essential goods. To ensure supplies to priority sectors, natural gas from lower-priority sectors may be redistributed by the government.
Supply management
Gas supply may be reduced first from petrochemical facilities
Gas supply may be reduced first from petrochemical facilities, including ONGC Petro Additions Limited, GAIL's Pata Petrochemical Complex, and other high-pressure industrial gas consumers. Power plant supplies may also be lowered if needed. The directive also asks oil refining businesses to absorb part of the disturbance by limiting gas allocation to refineries to about 65% of their average usage over the past six months, subject to operational feasibility.