BP chief Dudley bats for free market

Having decided to invest $7.2 billion in Reliance Industries’ 23 gas and oil blocks, BP Group chief executive Bob Dudley batted for a free market on the first day of his two-day visit to India. Gas price and marketing is regulated in the country.

Along with Reliance chairman Mukesh Ambani, Dudley was here to meet important central ministers and functionaries. Earlier in the day, the duo met commerce minister Anand Sharma. The meeting was followed by another one with petroleum minister S Jaipal Reddy that lasted well over an hour. They also called on law minister Salman Khurshid and home minister P Chidambaram.

Speaking to reporters after meeting Sharma, Dudley said, “In general, deep water requires a lot of capital. It has a lot of risk, you never know exactly what is there down miles below the subsea and so you have to develop mechanisms to create....and overtime free markets system is what any economy needs on Wednesday to ensure efficient development of these resources.”

The government decides the price and marketing of gas. The price of gas from Reliance’s D6 block has been fixed at $4.2 per unit for five years ending March 2014. Imported gas, by contrast, is sold at around $12 per unit. Moreover, Reliance is not free to choose its customers. The government has decided priority sectors for gas sale.

D1 and D3, the two main producing fields in Reliance-operated KG D6 block, have seen output drop to 36.5 mscmd from 54 mscmd in March last year, instead of rising to 61.88 mscmd as planned for this year. Together with 7.4 mscmd from the MA oilfield in the same block, the total gas production from KG-D6 currently is at 43.9 mscmd. Industry experts opine a more realistic and market-linked price will incentivise higher production.

On the falling gas output from D6, he said the block had different groupings and accumulations. “We are working with the government to get additional satellites approved and the reservoir approved. We are hopeful of these approvals this year, so that we can begin the engineering…I believe by 2014, the gas production will go back up,” he said.

BP and Reliance have put in place joint teams in the UK and Mumbai to evaluate options to increase production. “We plan to set up our new gas marketing joint venture in the next couple of months…to schedule and market domestic gas, import and distribute LNG (liquefied natural gas) in India and also to look at developing infrastructure,” Dudley said. BP chief will visit the D6 facilities in Kakinada in Andhra Pradesh tomorrow.

Ambani said the Reliance-BP partnership was definitive in India, but it was not limited to India. “We will look at appropriate opportunities between where true synergies come together all over the world. Initially, we really want to focus on India and create all the value for India because we really think that India’s own energy is critical to our growth.”

Dudley met Prime Minister Manmohan Singh at 7 pm.