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Sep 18, 2012, 08.21 AM IST
Reliance Industries has sought tripling of its KG-D6 gas price from April 1, 2014 after the current below market rate of USD 4.205 per mmBtu expires.
RIL on September 6 wrote to A Giridhar, Joint Secretary (Exploration) in the Ministry of Petroleum and Natural Gas proposing to price natural gas it produces from the Krishna Godavari basin block in Bay of Bengal at a rate equivalent to price India pays for importing liquefied natural gas (LNG).
The company wants to price KG-D6 gas at 12.67% of JCC, or Japan Customs-Cleared Crude, plus USD 0.26 per million British thermal unit. At USD 100 per barrel oil price, gas will cost USD 12.93 per mmBtu, sources with direct knowledge of the development said.
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% 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. RIL said it needs to "achieve financial closure in order to undertake further development activities in the block. Therefore, it is once again requested that approval of the Government to the price formula as proposed... be conveyed to us without further delay."
The company said the price formula it has proposed would apply for all gas produced from KG-D6 block post March 2014. Besides currently producing Dhirubhai-1 & 3 gas fields and MA oil field, the formula would also apply to D2, D6, D19 and D22 fields -- the field development plan of which has been approved by the government, it said.
The government had in 2007 fixed a price of USD 4.205 per mmBtu for gas from KG-D6 block for first five years of production. KG-D6 fields began production on April 1, 2009 and the current price expires on March 31, 2014.
From April 1, 2014, RIL wants the gas to be price at import parity as is done in case of crude oil.
Domestic oil producers like state-owned ONGC get import parity or a rate equivalent to international oil price, for the crude oil they produce from domestic fields.
"The proposed formula is in full compliance of the provisions of the Production Sharing Contract (PSC) that mandate that gas must be sold at arms-length prices to the benefit of the parites under the PSC," RIL President and COO B Ganguly wrote to the Oil Ministry.
"Imported LNG in the country constitutes about 35% of gas consumption in the country and this share is expected to progressively increase. Hence long term LNG prices represent the best benchmark for arms-length prices," he added.
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