All you want to know about KG-D6

Like Helen of Troy whose face launched a thousand ships, the KG-D6 block has spawned a thousand controversies. The latest is the Election Commission’s order to put on hold the gas price hike.

What is it? The KG-D6 block, an exploratory field in the Krishna Godavari basin, shot to fame in 2002 when Reliance Industries (RIL) announced a mammoth gas find in this area. The 10 trillion cubic feet of reserves that were initially estimated to be sloshing around in KG-D6 had the potential to change India’s energy fortunes. But the output never reached the promised level; what followed was a long-drawn dispute that could put soap operas to shame.

Gas production which started in April 2009 rose to 60 mmscmd quickly. But then, output began falling and today is less than 15 mmscmd. RIL says geological complexity is the villain, while the government blames the company for not drilling enough wells.

The government auditor found fault with RIL’s procurement processes. The government sought to impose a penalty of $1.8 billion on RIL for the production shortfall. Not kosher, said RIL and took the matter to arbitration.

Some have accused RIL of suppressing production in anticipation of a higher price, something the company pooh-poohs as technically impossible. The pricing wars, in fact, began in 2005, with the Anil Ambani-controlled RNRL accusing Mukesh Ambani-run RIL of reneging on the commitment of gas supply at $2.34 a unit. RIL says it could not sell at less than the $4.2 a unit fixed by the government. After much dirty linen washed in public, the Supreme Court in 2010 ruled in favour of RIL. The price of $4.2 a unit was to be valid until April 2014. The Rangarajan Committee’s formula would have nearly doubled domestic gas price from April 1 this year. RIL was told to submit bank guarantees to be encashed in case it was found guilty of suppressing output. Meanwhile, petitions against the proposed hike were filed. The Election Commission’s move to stay the price hike until the elections added to the melee.

Why is it important Natural gas is ecofriendly and relatively cheap. But its share in India’s energy basket is just around 10 per cent. To increase this, a remunerative price that makes domestic production viable is important. Public sector explorers ONGC and Oil India which produce 80 per cent of the country’s gas also have fields in the KG area. Sure, RIL should be penalised if found guilty, but that’s no reason to keep the gas sector hostage. On the other hand, if domestic gas becomes pricier, power and fertiliser costs go up. So, a right balance should be struck.

Why should I care? One, how the KG-D6 issue plays out has a bearing on the energy security of the nation. It also impacts how much you pay for your power, food, CNG and piped gas. And if you are a shareholder in RIL, you would know that the stock has taken a beating due to the KG-D6 issue.

Bottomline Don’t ignore gas problems. They can cause heartburn.

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