RIL seeks nod for proposal to triple gas prices from Apr'14
New Delhi: Reliance Industries has sought approval for a proposal to triple its KG-D6 gas prices from April 1, 2014 after the current below market rate of USD 4.205 per mmBtu expires.
"In June 2012, the Operator (RIL) submitted to the government for approval of a proposal for a new crude oil-linked pricing formula to be used in new sales contracts for the period commencing April 1, 2014," the firm's minority partner Niko Resources said.
If the formula is approved, it would result in a gas price of slightly under USD 13 per million British thermal unit (mmBtu) at an oil price of USD 100 per barrel, it said.
"The proposed formula was based on the pricing formula under a contract for long-term import of LNG into India and was universally accepted by arm's length buyers who bid in large numbers in an open price discovery process," Niko, which holds 10 percent interest in KG-D6 block, said in its operational review.
RIL is the operator of the KG-D6 block with 60 percent stake while the remaining 30 percent is held by UK's Bp plc.
RIL on September 6 wrote a reminder to A Giridhar, Joint Secretary (Exploration) in the Ministry of Petroleum and Natural Gas seeking approval of the price.
The company wants to price KG-D6 gas at 12.67 percent of JCC, or Japan Customs-Cleared Crude, plus USD 0.26 per mmBtu. At USD 100 per barrel oil price, gas will cost USD 12.93 per mmBtu.
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 tonnes per annum (30 million standard cubic meters per day) of LNG from RasGas of Qatar.
RasGas charges 12.67 percent of JCC and Petronet, which is headed by Oil Secretary, pays a further USD 0.26 per mmBtu for shipping the gas in its liquid form (LNG) from Qatar.
"We believe gas market demand fundamentals are strong in India, where gas markets have historically been supply constrained," Niko said.
Despite increases in LNG imports and domestic production, the gap between supply and demand in India has remained high and it could grow in the future.
"The Production Sharing Contract (PSC) for the D6 Block states that natural gas must be sold at arm's length prices, with 'arm's length' defined as sales made freely in the open market between willing and unrelated sellers and buyers, and that the pricing formula be approved by the government taking into account the prevailing policy on natural gas," it said.
Niko said RIL in May 2007 discovered an arm's length price for the sale of gas on a transparent basis with a term of three years and accordingly, proposed a gas price formula to the Government.
In September 2007, the government approved a pricing formula with some modification to the proposed formula.
"The approved pricing formula was declared effective for a period of five years rather than the three years proposed by the Operator and while linked to crude oil prices, has a floor and a cap," it said.
The floor is USD 2.50 per mmBtu if Brent crude oil is USD 25 per barrel or lower and the cap is USD 4.20 per mmBtu if Brent crude oil is USD 60 or more.
"The then prevailing price for LNG contracted for sale in India under long term LNG contracts was approximately USD 3.80 per mmBtu," Niko said.
"We have signed numerous gas sales contracts with customers in the fertiliser, power, steel, city gas distribution, liquefied petroleum gas market and pipeline transportation industries, and all of these gas sales contracts expire on March 31, 2014," it added.