RIL pitches for market-driven price for natural gas

Pitching for market-driven prices for natural gas, Reliance Industries has said it has found very large gas reserves that need a price of more than $10 per million British thermal unit to be developed and produced.

In a 18-page submission to the C Rangarajan Committee, which is examining terms of future contracts for exploration of oil and gas as well as basis for gas pricing, RIL said only market related prices can provide an incentive to help produce the vast domestic resources that either concentrated in small pools or are located in technologically challenging ultra deepsea.

"RIL (and partner) BP have around 5.5 Trillion cubic feet of discovered gas resources which would require large amount of risk capital to be invested. Most of these discoveries would require price of more than $10 per million British thermal unit to be developed and produced," it said.

It currently gets paid $4.2 per mmBtu for the gas produced from its KG-D6 fields in Bay of Bengal. This rate is lower than what Cairn India gets in the neighbouring Ravva Satellite field in the same basin and UK's BG Group-operated Panna/Mukta and Tapti fields in western offshore.

KG-D6 output has slipped drastically due to a host of problems and the company is arguing that restoring production would need higher investments.

RIL, which has been seeking a rate equivalent to import parity price for KG-D6 gas from April 2014, said the signed contracts for its and other fields gives government powers to approve but does "not entitle the Government to fix the price of gas."

"There is no finding or observation in the Judgement of the Supreme Court which entitles the Government to arbitrarily or unilaterally fix the price of gas and require the contractor to sell gas at a price which is not the market price of natural gas in the country," it said.

The Apex Court, the May 2010 judgement in RIL's gas dispute with Reliance Natural Resources Ltd, "requires the Government to revise the price if the price at which the contractor sells the gas under a formula is not the market price of gas in the country."

"We trust that the committee will make recommendations... which stipulates that all gas produced by the contractor will be sold at an arm's length market price," RIL wrote.

The company wanted the existing arrangement of profit sharing between explorers and the government to continue.

The six-member panel headed by the Prime Minister's Economic Advisory Council chairman may be veering around to the idea of changing the present system where firms like RIL are allowed to recover all their investment first before sharing profit with the government, thereby giving incentive to keep raising spending to delay government profit.