RIL to get benefit of gas price hike from Sept 2017

RIL to get benefit of gas price hike from Sept 2017 New Delhi: Reliance Industries will get real benefit of doubling of natural gas prices only from September 2017 when it’s newer and satellite fields off the east coast come to production.

RIL, whose fields currently make up for just 12-13 percent of total domestic production of about 85 million standard cubic meters per day, does not yet have all approvals in place to bring 16 discoveries in the KG-D6 block and another 6 in NEC-25 block off Orissa to production, sources said.

The finds in KG-D6 can add a minimum 30 mmscmd of output to about 14 mmsmcd production from currently producing D1&D3 fields in the KG basin block. But this incremental production is unlikely before September 2017 as the company has not yet been permitted by DGH to submit an integrated development plan.

The field development plan for discoveries in NEC-25 that can produce 15-20 mmscmd, has not yet been approved.

Sources said the gains for RIL from doubling of natural gas price to USD 8.4 per million British thermal unit from April 2014 will be restricted to flagging output from D1&D3 fields in KG-D6 and the real gains will come towards fag end of the 5-year tenure of the higher gas price approved by the government on June 27.

The Cabinet Committee of Economic Affairs (CCEA) on June 27 approved a new pricing formula based on the average of the prices of imported liquefied natural gas (LNG) into India and the weighted average of gas prices in North America, Europe and Japan.

The pricing formula will be effective on April 1, 2014 for a period of five years, with the price to be revised quarterly using the approved formula.

The Oil Ministry in a statement on Friday evening also stated that there will be no windfall gains to RIL as new gas production from the company's fields will not start before 2017-18.

While the Ministry did not indicate the price of gas in April next year, RIL's minority partner, Niko Resources in a statement said USD 8.4 as against current USD 4.2 per MMBtu.

This price was also indicated in the Annexure that the Oil Ministry attached to the main Cabinet note on pricing of domestic gas as per a formula suggested by the Rangarajan panel. On page 88 of the Annexure-1, the Ministry stated the gas price based on the Petronet LNG Ltd's long-term contracts with RasGas of Qatar would come to USD 8.42 per mmBtu.

CCEA has approved inclusion of only price of only long-term LNG imports into India and has left out spot rates. Petronet has also contracted long-term LNG from Gorgon project in Australia at higher price than RasGas and its inclusion in the formula from 2015-16 would further push up domestic rates.

The increased price will help monetise discoveries which are not viable at current rates.

"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 Oil Ministry statement said, adding that 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.