RIL price not viable for small finds: Experts

A price of $4.20 per million British thermal units (mBtu) is not viable for smaller gas discoveries, say industry experts. Reliance Industries Ltd (RIL) sells gas from KG D6 (Krishna-Godavari) basin at the same price. The experts add that gas from smaller discoveries is economically feasible only if sold at $5-6 per mBtu.

“In case of D6 gas, where RIL is the operator, the price of $4.20 is viable because the size of the discovery is huge and each well produces 6-7 million standard cubic metres of gas a day,” said a senior official at Oil and Natural Gas Corporation (ONGC).

The price of $4.20 for D6 gas is valid for five years from April 1, 2009. The cost of production from RIL’s Dhirubhai-1 and 3, which are the major gas producing fields, is estimated at $2.9 per mBtu.

Industry sources say that in case of Gujarat State Petroleum Corporation’s Deendayal gas field, the field development plan has been approved at a price of $5.70 per mBtu. In fact, almost all non-APM gas prices are higher than the KG D6 price. Gas from Panna-Mukta and Tapti fields, too, is priced at $5.70 per mBtu. Gas from Ravva Satellite field is priced at $4.40 per mBtu.

After a Supreme Court judgment reaffirmed the government’s power to approve the price of gas sale in RIL-Reliance Natural Resources Ltd (RNRL) case, RIL said developing smaller fields in the KG D6 block was not economically viable at the price of $4.20 per mBtu. It may seek a higher price when the smaller fields go on stream.

“It is not viable (to develop smaller fields adjoining Dhirubhai-1 and 3 fields in KG D6 block) at the current prices,” P M S Prasad, executive director, RIL, told a news agency after the judgment.

Under the Production Sharing Contract (PSC), RIL has to discover the price the market is willing to pay and submit it to the government for approval. Interestingly, RNRL sought gas supply from RIL at a price of $2.34 per mBtu under a family agreement. This price was not approved by the government.

Viability of price is an issue in the gas fields that are being developed. ONGC aims to produce around 20-25 million cubic metres of gas a day from its deep-water block in the Krishna-Godavari basin, and is seeking a price in excess of $7 per mBtu to make the development viable.

Industry experts say none of the onshore or offshore gas discovery being developed is feasible at the price of $4.20 per mBtu.