The Hindu Business Line : Cairn, GAIL celebrate dispute-free association

Gala time
Ravva joint venture was the first private party operated gas producer to enter into a sales agreement with GAIL in 1997.
Cairn with 22.5 per cent interest is the operator of Ravva joint venture.

Our Bureau

Kolkata, Aug. 29 At a time when pricing of natural gas is subjected to severe controversies and buyers and sellers are often found at loggerheads, the Cairn operated Ravva joint venture is planning a gala celebration of its decade-long gas sales arrangements with GAIL. Ravva joint venture was the first private party operated gas producer to enter into a sales agreement with GAIL in 1997.

The journey that began with a mere one million standard cubic metre a day (mmscmd) supply (of associated gas) commitment, increased to two mmscmd in 2001 with additional one mmscmd gas flowing from a satellite gas field in Ravva.

Original Contract

With production of the satellite field now pushed up to 1.2 mmscmd during last one year, Cairn now supplies a total of 2.2-2.3 mmscmd of gas to GAIL at different prices for further supplies to APM and non-APM customers in Andhra Pradesh

While there is no immediate possibility of increasing the total gas production in Ravva, Cairn is now busy in in-fill drilling for ensuring the plateau production for years to come before it enters into negotiation for renewal of the original contract with GAIL in 2008.

The company is presently selling 1 mmscmd associated gas at $3.5 per mmBtu (million metric British thermal unit) and another one mmscmd from satellite field at $4.33 per mmBtu. The promised quantities apart, another 0.2 mmscmd production from satellite field is sold as fall-back volume based on availability.

“Gas trade was dominated by public sector before Ravva joint venture began production. Naturally there was scope of conflict of interest. However, in reality we had completed 10 long dispute free years of association,” said a Cairn official.

Market Realities

The company takes credit of understanding the market realities in Andhra Pradesh and negotiating accordingly with GAIL. It may be mentioned that Cairn had renegotiated a 1 mmscmd contract at a lower price of $4.33 per mmbtu in 2006 when Panna-Mukta-Tapti joint venture (between ONGC, BG and Reliance) had already set a benchmark of $4.75 per mmBtu.

Every market has different a resistance levels when it comes to pricing. For example comparisons cannot be drawn between a highly matured gas-market in States like Gujarat (consuming LNG at $ 10 per mmBtu) with Andhra Pradesh which is dominated by APM gas, the official says. “We paid attention to the market realities while negotiating prices for our product,” he added.

Cairn with 22.5 per cent interest is the operator of Ravva joint venture. Other partners include, ONGC (40 per cent), Videocon Petroleum (25 per cent), and Ravva Oil (12.5 per cent). Ravva oil is a wholly owned subsidiary of Marubeni Corporation.

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