RIL wants $13 per mmBtu for CBM it plans to produce

Reliance on September 16 submitted to the Oil Ministry a formula for pricing of 3 million standard cubic meters per day of CBM it plans to produce from Sohagpur block in Madhya Pradesh, sources privy to the development said.

The formula is the same as the one at which RasGas of Qatar sells liquefied natural gas (LNG) on a long-term contract to India.

According to the formula, Reliance wants 12.67% of the prevailing Japanese Crude Coctail (JCC) plus 0.26 per mmBtu, they said.

JCC is now ruling around USD 100 per barrel and CBM price according to this formula comes to USD 12.67 per mmBtu plus USD 0.26 per mmBtu, totaling USD 12.93 per mmBtu.

But industry observes scoffed at the price sought saying RasGas supplies gas rich in compounds like ethane (C2) and propane (C3) which are useful in manufacture of LPG and petrochemicals. Whereas, CBM is just methane (C1) and should therefore be priced at least 15-20% discount to the price of rich or C2/C3 compound-rich gas.

Also, LNG pricing cannot be applied for domestic gas as huge investment goes into putting a liquefication plant that turns natural gas into its liquid state by cooling it at sub-zero temperature.

Sources said Reliance in the price approval letter states that the formula it is suggesting is arrived at on an arms-length basis.

RasGas prices the 7.5 million tons a year (about 30 mmscmd) gas it sells to Petronet LNG Ltd at 12.67% of JCC. Another USD 0.26 per mmBtu is the cost it takes for shipping the gas cooled to turn it into liquid (called LNG) in cryogenic ships.

Reliance has lifted this formula and has sought pricing of its CBM in line with that.

Great Eastern Energy Corp Ltd (GEECL) is selling CBM is produces from its Raniganj block in West Bengalat USD 6.79 per mmBtu while domestically produced natural gas is priced at USD 4.2 to USD 5.73 per mmBtu.

The natural gas Reliance produces from its eastern offshore KG-D6 fields is priced at USD 4.205 per mmBtu for five years ending March 31, 2014.

Sources said Reliance has sought expeditious approval of the CBM price so that it can sign gas sales and purchase agreements (GSPAs). The company plans to feed Sohagpur gas to state-owned GAIL's HVJ trunk pipeline for supply to customers.