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Gas pricing decision for RIL, Essar Oil by Apr-end

‘The government revenues in a CBM block depend on price of gas, higher the price, the larger the take and vice-versa,’ an Oil Ministry official said.

The government will decide on the price of gas that Reliance Industries (RIL) and Essar Oil plan to produce from coal seams by April-end, an Oil Ministry official said.

“We don't have to go to the Empowered Group of Ministers (EGoM) on coal bed methane (CBM) pricing as the Production Sharing Contract (PSC) for these are different from the ones for conventional oil and gas fields (like RIL’s KG-D6 fields),” the official said.

Unlike KG-D6 fields, there is no issue of cost recovery involved in CBM (coal-bed methane) blocks as the government gets a fixed royalty which the operators bid at the time of allotment of the blocks. In conventional fields, all cost incurred is first recovered by the operator and revenues are then shared with the government in a fixed proportion.

The official said the government revenues in a CBM block depend on price of gas, higher the price, the larger the take and vice-versa.

“We should be able to decide on the price of CBM in a month's time, certainly by April-end,” he said.

While Essar Oil has proposed to sell gas from its Raniganj block in West Bengal at $4.20 per million British thermal unit, RIL has sought government nod for selling CBM from its Sohagpur block at a price close to $13 per mmBtu.

RIL has priced CBM at 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu from end-2014.

At $100 per barrel of oil, CBM from RIL's Sohagpur CBM blocks in Madhya Pradesh, will cost $12.93 per mmBtu.

The pricing formula RIL has proposed for CBM is different from the one at which natural gas from the company's eastern offshore KG-D6 block is priced at.

KG-D6 gas at cap crude oil price of $60 per barrel, translates into a sale price of $4.205 per mmBtu. Sohagpur CBM at $60 per barrel oil price would be $7.862 per mmBtu.

The company on February 3 put out an advertisement proposing to price CBM from SP(West)-CBM-2001/1 and SP(East)-CBM-2001/1 blocks at 12.67% of JCC, or Japan Customs-Cleared Crude, plus $0.26, plus 'V', where 'V' was the biddable number that users were asked to quote. 'V' could have been either positive or negative.

Sources said RIL got a demand of 20.63 mmscmd (about six times the gas offered for sale under the process of price discovery) if the biddable parameter 'v' is kept at zero.

RIL will charge $0.15 per mmBtu as marketing margin over and above the CBM price and the customers would also have to pay for taxes/duties and transportation tariff.

The formula proposed by RIL is the same at which Petronet LNG Ltd, the nation's largest liquefied natural gas importer, buys 7.5 million tonne per annum of LNG from RasGas of Qatar.

RasGas charges 12.67% of JCC and Petronet pays a further $0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.

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Remunerative energy prices needed to ensure expanded supply: PM

While governmental support can greatly help in developing useful partnerships in the gas and oil sector, prime minister Manmohan Singh said he expected the industry to come forward with innovative ways and means to create a better and sustainable energy future for the Asian region

New Delhi: Stressing that the government was committed to finding solutions for the issues facing the country’s gas industry, prime minister Manmohan Singh on Friday said remunerative energy prices was needed to ensure expanded energy supply, reports PTI.

“The government has initiated gas pricing policy reforms to incentivise production of natural gas. We are conscious that remunerative energy prices are needed to ensure expanded energy supply,” he said at the 7th Asia Gas Partnership Summit here.

“Let me take this opportunity to reaffirm that our government is committed to taking all possible steps to find viable solutions to meet the concerns of the gas industry. We are committed to ensuring the predictability and transparency of our policy and regulatory environment,” he said.

The prime minister’s statement comes at a time when Reliance Industries (RIL), the nation’s largest private oil and gas producer, is seeking a more transparent and credible market price for natural gas.

RIL’s eastern offshore KG-D6 gas fields have seen output drop more than 40% to under 35 million metric standard cubic meters per day (mmscmd). RIL’s partner BP Plc too has called for remunerative prices for further investment to take place.

“The economic exploitation of these resources should lead, therefore, to win-win solutions for both the investors as well as the people of India at large,” Mr Singh said. “At the same time oil and gas are national resources and, therefore, should be within the framework of government and regulatory oversight.”

While governmental support can greatly help in developing useful partnerships in the gas and oil sector, Mr Singh said he expected the industry to come forward with innovative ways and means to create a better and sustainable energy future for the Asian region.

Mr Singh said the use of natural gas offers greater supply security through diversification of the energy basket and also helps in promoting sustainable economic growth and development.

“Compared to other hydrocarbons, the use of gas is not only price-competitive but also environmentally benign for a number of user-industries. Gas is an efficient fuel for power generation, a better feedstock for fertiliser production and a cleaner alternative for vehicular transport,” he said.

During last five years, India’s gas consumption has grown 14%, he said. “Expanding the use of natural gas in India is one of the most important and immediate ways of responding to the challenges of energy security and the management of climate change.”

The New Exploration Licensing Policy (NELP), launched in 1997-98, has attracted over $14 billion investment and discovery of 87 oil and gas blocks. Of these three blocks are in production.

The ninth round of NELP has just been completed covering a sedimentary area of about 88,000 sq km, which saw participation by 37 companies, including eight foreign ones.

“The opening up of the oil and gas sector to private industry participation has resulted in higher domestic gas availability and has also led to growing participation by multinational corporations,” Mr Singh said.

To cater to the large demand for gas, India has accelerated investment in creation of LNG re-gasification facilities. With new re-gasification LNG terminals coming up at Kochi and Dabhol, the country’s current import capacity of 14 million tonnes a year is set to increase to 20 million tonnes a year by 2012-13, he added.

“We have also launched an ambitious pipeline development programme. I understand that the (state-owned) GAIL alone will expand its pipeline length from the existing 9,000 km to around 14,500 km by 2014. Private operators are also expected to add another 5,000 km in the same period.

“The target is to have a countrywide gas grid of about 30,000 km by the end of the 12th Five-Year Plan in 2017,” he added.

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