Rangarajan Panel report on gas pricing will enable investments: RIL

New Delhi: Reliance Industries has said that Rangarajan panel mandating doubling of price of domestically produced natural gas to $8 per mmBtu will create an “investment enabling environment”.

RIL, which had been engaged in protracted wrangling with the Oil Ministry on pricing of natural gas from its eastern offshore KG-D6 field, said there was “positive traction in domestic exploration and production business environment with the submission of Rangarajan Committee Report”.

[caption id=“attachment_596537” align=“alignleft” width=“380”]  The Rangarajan Committee last month suggested pricing of domestically produced natural gas at an average of international hub prices. Reuters[/caption]

The panel had addressed key issues on “gas price mechanism” and created “an investment enabling environment”, RIL said in investor presentation on its October-December quarter results.

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RIL has since been seeking a price of almost $13 per million British thermal unit for gas produced from KG-D6 gas on expiry of current $4.2 per mmBtu price in April next year and its comments on Rangarajan Committee recommendation are being seen as its readiness to accept a lower price.

The company, which had previously stated that $4.2 was too low for monetising smaller and marginal gas finds in KG-D6 and other blocks, said the Rangarajan panel recommendation “indicates positive sign for monetization of marginal fields”.

The Rangarajan Committee last month suggested pricing of domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of a bid-based market discovery of the rate.

The panel suggested averaging volume-weighted price of gas at US’s Henry Hub, UK’s NBP and Japan Customs Cleared prices for the trailing 12 months with the the net price that producer got from exporting liquefied natural gas (LNG) to India on a long-term contract.

Taking last year’s publicly available consumption numbers and the prevailing price of gas in the three markets, the formula suggested by the Rangarajan committee gives just over $8 per mmBtu as the price of domestic gas.

This is more than $ 4.2-5.73 per mmBtu price currently prevalent in the country. RIL gets $4.2 per mmBtu for the gas it produces from eastern offshore KG-D6. This price was mandated for first five years of production and is due to expire on March 31, 2014.

From April 2014, the company wanted to price KG-D6 gas at the rate India pays for importing gas in its liquid form (called LNG) on a long-term contract from Qatar. India pays 12.67 percent of the international oil rate plus $0.26 per mmBtu to Qatar. At $100 per barrel oil rate, this translated into a gas price of $12.93.

The panel headed by C Rangarajan-Chairman, Economic Advisory Council to the Prime Minister-suggested gas-on-gas competition after five years. “Government is moving towards aligning Indian gas prices with international markets which will act as a bridge for gas on gas competition in the future,” RIL said.

“Recent regulatory improvement complement the effort in attracting domestic investment,” RIL said in the presentation. Stating that LNG terminals were running at full capacity at $ 15 per mmBtu price, it said sizable demand for gas existed above USD 10 per mmBtu driven by high liquid fuel prices ($ 20) combined with convenience of gas usage.

Listing key challenges, it said “timely approvals” and “implementation of pricing recommendation in line with the PSC provisions.” RIL said natural gas production from KG-D6 field fell 41 percent in October-December quarter to 78 billion cubic feet from 133 bcf in the same period a year ago.

The company has shut more than one-third of the wells due to high water and sand ingress.It has begun drilling of the first well on a satellite field in the block and has begun work on for upgradation of booster and other facilities which would address the decline in reservoir pressure and enhance the recovery.

PTI