Gas price hike: OilMin rebuts charges of windfall gains to RIL
A week after doubling of natural gas prices was approved, the Oil Ministry today rebutted charges of the move resulting in windfall gains to Reliance Industries, saying new gas production from the company's fields will not start before 2017-18.
New Delhi: A week after doubling of natural gas prices was approved, the Oil Ministry today rebutted charges of the move resulting in windfall gains to Reliance Industries, saying new gas production from the company's fields will not start before 2017-18.
"Presently it (RIL) is producing only 10 per cent of the gas production in the country. With the new price, it is expected that their production from KG D-6 will increase with the additional investment," the ministry said in a statement.
The Cabinet Committee on Economic Affairs had on June 27 approved pricing of all domestic gas through Rangarajan formula from April 1, 2014. The price of gas as per the formula is likely to be about USD 8.4 per million British thermal unit as opposed to USD 4.2 currently.
The increased price will help monetise discoveries which are not viable at current rates, it said.
"However, the gas flow (from the new fields) is not likely to start before 2017-18 and therefore, allegation of any windfall gain is misconceived," the statement said adding more than two-third of the domestic production is by public sector firms which stand to gain the most from the price hike.
The Ministry said the main reasons for weak domestic gas production was lower sale price.
"The present price of USD 4.2 per mmBtu has not been found to be feasible and the Ministry is not approving the development plan for the lack of commercial viability. Around 3 trillion cubic feet of gas reserve is waiting to be exploited," it said.
The Rangarajan formula for pricing will apply to all forms of natural gas - conventional, shale gas and coal-bed methane (CBM), and would apply from April 1, 2014.
"These guidelines shall apply from April 1, 2014 and shall be applicable for five years after which market discovery price could be adopted as per the road map being prepared by Dr Kelkar Committee," the statement said.
Meanwhile, CII in a statement said it was "in favor of dollar based gas pricing and the CCEA's recent decision to increase the gas prices will not only incentivise investment in exploration and production, but will also result in increased revenues to the government which could then be invested in various development programmes."
"This is also directionally a step towards achieving market determined pricing which will encourage the development of a competitive gas market in the country," the chamber said.
The Ministry said as per the Rangarajan formula, the price for natural gas in April-June 2013 comes to USD 6.83 per mmBtu. It however did not indicate the price of gas in April next year.
RIL's minority partner, Niko Resources in a statement said USD 8.4 will be the price in April 2014 and will be revised quarterly.