New Delhi: Stoutly defending the doubling of gas prices from 2014, Oil Minister M Veerappa Moily on Wednesday said the move will help bring to production over 3 Trillion cubic feet of gas reserves that had been declared economically unviable at current rates of USD 4.2.
"Approximately 3 Tcf gas reserves is lying to be exploited which cannot be monetised if the gas price remain at the present level of USD 4.2 per million British thermal unit," he said addressing a seminar organised by Assocham.
Several gas discoveries of firms like Oil and Natural Gas Corp (ONGC) and Reliance Industries have been declared unviable by the Directorate General of Hydrocarbons (DGH) as current gas price of USD 4.2 was inadequate to cover the cost.
"The ministry is rejecting the monetisation of new discoveries as their production will not be viable at the present price of USD 4.2," he said.
Besides making deepsea gas finds viable, the new pricing regime which kicks in from April 1, 2014 would help revive the almost dead investment in the oil and gas hunt.
"There has been consistent decline in the investment in this sector which was around USD 6 billion in 2007-08 and dropped down to a meagre USD 1.8 Us billion in 2011-12," he said adding at the same time Indian firms invested USD 27 billion abroad and another USD 10 billion was in pipeline.
"Therefore, it is evident that we have no choice left but to take immediate measures to make the domestic gas production sector viable," he said.
With unremunerative price, gas production in India has declined from a peak of 143 million standard cubic metres per day in 2010-11 to 111 mmscmd in 2012-13.
Production by the public sector companies ONGC and OIL has remained stagnant at about 70 mmscmd while output of private firms has dipped from 72.9 mmscmd in 2010-11 to 40 mmscmd in 2012-13, he said.
The output dip meant larger import of gas in its liquid form (liquefied natural gas or LNG). The LNG imports accounted for 20 percent of total gas consumption in 2010-11, 25 per cent in 2011-12 and 30 percent in 2012-13.
"The deficit between supply and demand is projected to increase from 143 mmsmd in 2012-13 to 234 mmsmd in 2016-17, which if met from import means not only huge outflow of foreign exchange but import of gas at a much higher price of more than USD 11," Moily said.
The 3 Tcf reserves not viable at USD 4.2 price equals the remaining resource base in the currently producing Dhirubhai-1 and 3 (D1&D3) gas fields in RIL's KG-D6 block.
The Cabinet Committee on Economic Affairs on June 27 approved pricing of domestically produced gas at an average of imported LNG and international benchmarks from April 1 next year. Accordingly, the price in April would be USD 8.4.
Moily said the option before the country was to either keep the finds in the ground and continue importing gas at USD 11-12 or pay much lesser price to domestic producers to bring the discoveries to production and cut foreign exchange outgo on imports.
"Government is also fully aware of the impact of price rise on the consuming sector like power and fertiliser...
"...And at this point of time it will be relevant to say the revise price being fixed with effect from from April, 2014 will be the output price for the domestically produced gas and the government will later look into its impact on the consuming sector and will take measures to ensure these products are available on the affordable price," he said.
He said the government is a big gainer from increase in gas price by way of higher taxes, royalty and profit petroleum.
"Broadly speaking, every USD 1 per mmBtu increase in the gas price would result in an additional burden of about USD 1 billion. Out of which, approximately USD 400-500 million will come back to the Government in the form of royalty, increased profit petroleum, taxes and dividends," he said.
Officials said the finds whose commerciality has not been approved by DGH are spread over RIL's KG basin KG-D6 block and Cauvery basin block CY-DWN-2001/2 off the Tamil Nadu coast.
In KG-D6, commerciality of D-5 and 18 had not been submitted due to low gas price, Declaration of Commerciality (DoC) of D-29, 30 and 31, which hold around 350 billion cubic feet of reserves that can produce 5-7 million standard cubic metres per day, has not been approved by DGH.
Also, D-35 find in the Cauvery basin block CY-DWN-2001/2 holding 719 billion cubic feet of gas that could produce 4 mmsmcd of gas was declared commercially unviable with DGH on May 14 stating that "at a gas price of USD 4.2/MMBtu, revenue generated is not adequate to meet the costs".
In RIL's NEC-OSN-97/2 (NEC-25) block, two finds D-32 and 40, holding 663 billion cubic feet of reserves capable of producing over 4 mmscmd, has not been entertained by DGH.
Similarly, ONGC's several discoveries in KG-DWN-98/2 blocks, which holds at least 3.56 Tcf of reserves, are unviable at USD 4.2. Its 16 billion cubic metres MDW-4A and 5 finds in Mahanadi basin MN-DWN-98/3 block face similar fate.
Macquarie Research in a note said, "A hike (in gas price) could boost India's recoverable gas reserves manifold" and quoted global consultants IHS-CERA to say that the nation's producible gas resources will rise to 80 Tcf at USD 8 gas price.