Making a strong pitch for market determined prices for natural gas, UK major BP Plc’s India head has said most of gas discoveries in the country are unviable at current rate of $4.2.

Writing as co-chairman of CII’s National Committee on Hydrocarbons, Sashi Mukundan told head of Parliament Standing Committee on Finance, Yashwant Sinha, that 27 trillion cubic feet of discovered gas resources or 9 fields of the size of Reliance Industries’ KG-D6 fields, await being put on production.

“The very poor rate of conversion of discoveries into production is due to the fact that the prevailing price of gas makes most of these discoveries unviable,” he wrote. “India, which is a largely gas-based geological province, has been curbing investments by mandating sub-market prices.”

The panel, in its report to Parliament earlier this month, had flayed the government decision to approve the Rangarajan formula for pricing of gas that will double rates to $8.4 per million British thermal unit from April 2014, and wanted RIL to deliver shortfall in KG-D6 output at old prices.

Mukundan said India gives import parity or price prevalent in international markets, for oil produced in the country. At $100-110 per barrel oil price, gas-equivalent rate is $18 per mmBtu (similar to the LNG import price).

“Risks and costs involved in exploring and developing a gas field are the same as those in an oil field,” he wrote.

“Neither the Government, nor the Board of any company can give the go ahead to develop discoveries that are non-commercial.

“Given the current gas price of $4.2, small, marginal and deep water discoveries made in the country will remain unproduced and demand will have to be met by importing LNG at over $13 per mmBtu with a disastrous impact on both the balance of payments and the subsidy outgo,” he said.

Mukundan said many of the existing discoveries by various companies such as Gujarat State Petroleum Corp (GSPC), ONGC, RIL-BP and others become viable at the new price which could bring over 50 million standard cubic meters per day of new gas production on stream in 3-4 years.

He said subsidised LPG is sold in India at $12 per mmBtu, commercial LPG sells at $24. The price of CNG in New Delhi is $14 per mmBtu, while diesel (after subsidies) sells at $19.

“How then, can a price of $6.7 per mmBtu (based on Dr Rangarajan formula for the current quarter and estimated at $8.4 in April 2014) be considered high when crude oil produced under the same Production Sharing Contracts and similar industry costs, fetches $18 per mmBtu?,” he asked.

Also, costs of setting up gas production facilities are not only higher, but also gas projects have far longer gestation periods.

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