New gas price policy inconsistent with PSC, says RIL's partner

The lower-than-expected hike in natural gas prices is "inconsistent" with the contract that government has signed with oil and gas explorers, said London- listed Hardy Oil, which partners Reliance Industries and BP in a KG basin gas discovery block.
The government this month implemented a new gas price of USD 5.61 per unit, a rate nearly 40 per cent lower than the price approved by the previous UPA regime but not implemented.
Explorers are unhappy with the new rate, which is 33 per cent higher the previous price of USD 4.2 per million British thermal unit and has been arrived at averaging out prevalent rates in gas surplus economies of US, Russia and Canada, as it is below the cost of producing from most gas discoveries in deepsea.

"The New Domestic Gas Pricing Guidelines are heavily weighted towards excess supply markets resulting in pricing materially lower than prevailing prices of imported gas.
"Given the projected shortfall in supply the gas, pricing policy is below expectations and is inconsistent with Production Sharing Contract (PSC) provisions which require the Contractor to ensure the gas price is determined by a regional competitive arms-length price discovery process," Hardy Chairman Alasdair Locke said.
Hardy holds 10 per cent interest in KG-DWN-2003/1 (D3) in Krishna Godavari basin in Bay of Bengal. RIL holds 60 per cent stake and is the operator of the block, where four discoveries have so far been made. BP has the remaining 30 per cent.

The company in its half yearly report said the new pricing policy "implies a significantly lower price than the previously notified Rangarajan Committee formula".

"There remains some uncertainty surrounding a pricing premium for deep-water discoveries and the development of our D3 discoveries is dependent on the future long-term price outlook for gas sales," it said.
RIL-BP-Hardy joint venture is "currently reviewing the appropriate way forward, taking into account policies recently announced by the Government of India and the overall prospectivity of the block."
India currently imports 13.5 million tons a year of liquefied natural gas (LNG) and demand of natural gas is projected to grow by 19 per cent per annum.

The D3 exploration licence encompasses an area of 3,288 square kilometres, in water depths of 400 meters to 2,200 meters, and is located about 45-km off the east coast.
Four gas discoveries Dhirubhai 39, 41, 44 and 52 have been made and the joint venture has acquired about 3,250 sq km of 3D seismic data over the block.
"The Ministry of Defence (via DGH) has communicated that the southwest portion of the D3 block, which amounts to more than 30 per cent of the area, falls under a DRDO designated impact zone and as a result has imposed certain access restrictions to that area," Hardy said.