OilMin wants RIL to sell gas at $4.2; $6-6.5 price for others

The oil ministry is looking at a price of $6-6.5 for all domestic natural gas but wants Reliance Industries to sell KG-D6 gas at old rate of $4.2 till it makes up for shortfall in supplies of past four years.

The ministry last week internally discussed tweaking the formula suggested by the C Rangarajan Committee to bring down the proposed increase from $8.4-8.8 per million British thermal unit to $6-6.5, a rate that will be affordable to most consumers and also incentivise exploration, sources said.

The new rate, the ministry believes, would be acceptable to the international investors and would help in monetising discoveries of Gujarat State Petroleum Corp (GPSC) in Deendayal Block in Bay of Bengal as well as those of RIL in Cauvery (CY-D5), KG-D6 (R-Series) and Mahanadi (NEC-25) block, which are not viable at current $4.2 per mmBtu rate.

Sources said a presentation made at the meeting stated that the new price will be applicable in case of RIL's KG-D6 block only after shortfall in gas production of last four years (about 1.9 trillion cubic feet) is delivered at old price. For subsequent production (about 2.5 Tcf), the new price will apply.

Though the stipulation appears to be the same as the one approved by the Cabinet under the previous UPA regime when it gave nod to the Rangarajan formula, but there appears to be a major shift going by the contents of the presentation.

Sources said the previous UPA government had stipulated that the new rate will not apply only to KG-D6 block's Dhirubhai-1 and 3 gas fields, which have not produced as per targets in last four years. While the new rate was to apply on all other fields in KG-D6 block, it would kick-in for D1&D3 only after the shortfall is made up.

The new rates were to apply for gas from currently producing MA field in the same KG-D6 block as the government had accepted geological reasons forwarded by RIL for its output lagging targets.

In the presentation, the ministry states that "for KG-D6 block of RIL, new price will be applicable only after shortfall in gas (about 1.9 Tcf) is delivered at old price."

Going by the language of the presentation, it would imply that the entire output of KG-D6 field including MA and production from newer fields like R-Series and satellites will not get the revised rate till the shortfall in output is met.

Sources said if this is the case, no new field in KG-D6 block will be put on production as they are unviable at the current rate of $4.2. The presentation in another slide states that the new rate would help in monetising discoveries like R-series that are not viable at $4.2.

The ministry in the presentation stated that RIL's has about 5 Tcf of gas reserves in gas finds its KG and Mahanadi basin block that are valued at $21 billion at current price of $4.2 and at $42 billion at $8.4 gas rate. It would take $14 billion to bring these finds to production, irrespective of gas price.