Hike KG-D6 gas price: RIL to govt

Reliance Industries is battling the government over cost-recoveries and delayed budgetary approvals for gas block development between 2008 and 2012. However, that has not stopped it from approaching the government for a higher price for gas from the KGD6 blocks -- prices linked to the market price for LNG, reports  CNBC-TV18's  Sajeet Manghat and Animesh Das.

Mukesh Ambani's Reliance Industries is bent on safeguarding shareholder value. So it has started a legal battle against the government's notice curtailing RIL's cost-recovery at USD 1.2 billion dollars. But that's not stopping the oil & gas giant from trying to negotiate a higher, market-linked price for gas from its KGD6 blocks. It sees these two are independent issues, and hopes the government will too.
Reliance says, "EGoM provided for price revision if market price of gas breaches USD 4.2/unit."
Reliance argues that the EGoM has provided for a price revision if the market price of gas, including that of LNG, breaches USD 4.2 per unit and LNG prices have surged from USD 3.86 dollars per unit at the time of the EGoM decision, to USD 15 per unit currently, while gas from KGD6 was capped at USD 4.2 per unit. So RIL says the gas pricing formula should be altered to reflect this price movement.
RIL also adds that unless the formula is tweaked, it may look to concentrate on using its JV with BP to market LNG over KGD6 gas, as LNG provides higher returns. Reliance also points out that it has proposed an arms-length price of USD 10 dollars per unit for Coal Bed Methane gas and even this is higher than the price of KGD6 gas.
Gas pricing issues aside, RIL is also gearing up for a long-drawn battle to defending its capex in KGD6.
For starters, it says the government is yet to approve the accounts from 2008 to 2012 and that the government is thinking up new reasons to justify the delay -- from high costs, to falling production. RIL also argues that there is no provision in the production sharing contract linking cost recovery to production. It adds that it has already spent USD10 billion on its KGD6 block, without any cost recovery.
In the meantime, RIL and partner BP are working to increase gas production, which has been hit by various factors including water seepage in the wells. These plans will be submitted by the year-end, and RIL hopes the government will approve the budgets for these measures when rigs return in January 2013.
It adds that this whole repair process is expected to take 1-2 years, and any results will be available only by the end of 2014. RIL & BP are also working on identifying and connecting unconnected or deeper gas reserves in D1D3 to augment gas supplies.
Integration of its R-series satellite fields, and other fields into KGD6 infrastructure is also on the cards and this will be a 3-4 year process after approvals, leading to a savings of one billion dollars.
Reliance warns that it has already cut its proved developed reserves by 38% in FY12, and cannot rule out a further reduction if corrective actions are not taken.
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