The Hindu Business Line : No change in price of gas from Reliance’s KG basin block

New Delhi, Dec. 8 The Government determined price for the sale of natural gas by Reliance Industries Ltd (RIL) from the D6 Block in the Krishna Godavari Basin will remain unchanged despite the steep fall in global crude oil prices.

A Petroleum Ministry official told Business Line that the price of $4.20/ million British thermal units (mBtu) at the delivery point will hold good for now. The price had been derived by taking an annual average of the ‘Brent’ crude petroleum (a benchmark variety) prevailing in the year just before the Government determined the KG basin gas price back in 2007. In 2007 when the landfall gas price of $4.20 was derived based on a formula that is valid for five years from the date of commencement of first commercial production and supply, the crude had averaged above $80 a barrel, these sources indicated. “Thus, the price of $4.20 per mBtu can remain for fiscal 2008-09 and 2009-10. If any revision has to happen it would not be before 2010-11,” sources said.

“RIL can reduce the price if the average of the preceding year is below $60 a barrel. However, the gas price cannot be reduced below $2.50/mBtu,” sources added.

The Empowered Group of Ministers (EGoM) while approving, in 2007, the formula/basis to discover the gas price had decided that the cap for price of crude in the ‘variable’ portion of the gas price would be frozen at $60 a barrel. The EGoM had also said that for natural gas price calculation the ‘constant’ in the calculation formula will be pegged at $2.50/mBtu thus setting that as the floor price.

The reason for taking the preceding years’ average was to enable the customer to know what the price of the gas would be in the next fiscal, sources explained. Besides, the price of $4.20 per mBtu excludes components such as transportation cost from the landfall point and taxes.

Gas from RIL’s D6 field is expected to start flowing from early next year, once the ongoing litigation is resolved.

The Government has also outlined the priority sectors to which the initial 40 million standard cubic metres a day (mmscmd) of gas will be supplied. Priority has been accorded to Ratnagiri Power Project Ltd along with fertiliser units.

After Ratnagiri, priority has been given to power plants in Andhra Pradesh for which the Ministries of Power and Petroleum would arrive at a mutually acceptable decision.

It also decided that the Petroleum Ministry would take decisions regarding supply of gas to consumers by the operator, in accordance with the decisions of the Government and taking into account Court orders. The Ministry would also consult the Ministries and stakeholders concerned.

Further, the Petroleum Ministry has to facilitate finalisation of the gas sale purchase agreements by fertiliser companies for gas supply. Priority has also been given to the existing gas based sponge iron and steel plants. This supply would be made from the production beyond the first 40 mmscmd.