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BP says $8-8.50 inadequate for developing deepsea gas finds

Last Updated: Thursday, March 28, 2013 - 15:14

New Delhi: UK's BP plc has said that Rangarajan Committee recommendation of doubling domestic natural gas price to USD 8-8.5 per mmBtu will be inadequate for bringing high risk deepsea discoveries to production.

In a letter to Pulok Chatterji, Principal Secretary to the Prime Minister, the Europe's second biggest oil firm asked the government to spell out a clear roadmap for migrating to market determined gas pricing in the next 3-5 years so as to provide clarity to producers to make investment decisions.

BP India head Sashi Mukundan in the March 8 letter said the panel headed by C Rangarajan, Chairman Economic Advisory Council to the Prime Minister, recognised that the current price for domestic gas was out of sync with global rates.

For the next five years, it suggested a "hybrid producer price" derived by averaging international hub prices with cost of imported liquid gas (LNG). The price as per this formula comes to USD 8-8.5 per million British thermal unit as opposed to USD 4.2 per mmBtu that BP and its partner Reliance Industries get for gas from eastern offshore KG-D6 fields.

"The price determined through the Committee's recommended formula is at a 40-50 percent discount to the existing free market price of imported LNG into India," he wrote.

At the proposed price, he said, "new production will come only from existing producing fields" but "technically challenged resources and projects in deep water and high risk exploration will be uneconomical to develop and produce."

"Most of the discovered deep water/high pressure-high temperature resources (about 10 Trillion cubic feet including 4-5 Tcf with RIL-BP) will not be economically feasible to develop at the resultant price and their lack of development will only exacerbate India's natural gas deficit," he added.

He said the pricing formula suggested in the interim to gas-on-gas competition (free market scenario) was not the "arms-length market determined" price as provided in the Production Sharing Contract like the one signed for KG-D6.

PSC provides for discovering a market price through open tender and does not provide government dictating a rate.

"It was on the basis of this PSC that BP made its large investment (of USD 7.2 billion) in the India," he wrote.

In case the Rangarajan committee suggested pricing is chosen as starting point for market determined pricing, the government should detail "a clear roadmap to transition in the next three-five years to a market determined price (LNG or alternate liquid fuels parity)."

"Such a roadmap will provide the clarity and certainty necessary to enable long-term investments by the producer, importers, and the consumers of gas," he said, adding the landed price of imported liquefied natural gas (LNG) at USD 13-14 was representative of the "arms-length market price" for gas.


First Published: Thursday, March 28, 2013 - 15:14
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