Stating its terms clearly, Reliance Industries today said that it can increase production in the KG-D6 only if the gas price is market aligned. This laid to rest all conspiracy theories that the firm was claiming production troubles at the basin to bargain with the government for a better price. The uncertainty over production even hammered the company’s stocks.
The gas production from the D1D3 blocks at the KG-D6 is languishing at around 30 mmscmd, the CNBC-TV18 said in an exclusive report.
The firm wrote to the petroleum ministry that it can increase KG-D6 production by an additional 30-35 mmscmd outside of D1D3 provided the price suits its margin. In a letter, dated 15 June 2012, RIL’s president and COO (Business) B Ganguly proposed a new gas price formula that is linked to JCC or Japanese Custom Cleared Crude, the CNBC-TV18 report said.
Referring to the consideration of the empowered group of ministers hiking the current $4.2 gas price, the RIL mentioned in the letter that it is submitting a new formula for post March 2014.
The additional production would entail an investment of $4 billion, the RIL letter said.
The firm along with its JV partners BP and Niko have decided that they could only commit such investments after obtaining board approval.
“This inevitably requires clarity regarding the basis for pricing the gas. Without adequate clarity on this front, it would not be possible to tie up funding or hope to achieve financial closure,” RIL said in its letter. CNBC-TV18 has a copy of the letter.
Putting the ball on the government’s court, the firm said, “Normally it is expected that the process from financial closure to start-up of production would take about three years. Therefore expeditious approval of our proposal will be critical to bring the gas to market in the shortest possible time frame.”
Interestingly, the formula proposed by RIL is the same one it has submitted for its remotely located Sohagpur CBM block in Madhya Pradesh.
Production from Sohagpur is expected to commence in March 2014, and that’s when RIL wants the same price formula for the KG-D6 gas.
Justifying this, RIL wrote, “The overwhelming response received against the open bid demonstrated the appetite for far more gas that had been offered under the notice inviting offers for sale of CBM gas.”
RIL’s also builds its case by arguing growing demand of LNG is today satisfying 35 percent of the country’s gas needs even at prices as high as $15/mmbtu.
However, relations between RIL and the petroleum ministry are at an all time low.