Millennium Post
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‘Gas price hike to ensure output, investment’

Defending the government's decision to double the price of gas from Reliance Industries Ltd's (RIL) KG basin installations, Petroleum and Natural Gas Minister M Veerappa Moily said that domestic production is unviable at the prevailing price. 'Approximately 3 trillion cubic ft of gas reserves are lying to be exploited, which cannot be monetised if the gas price remains at the present level of $4.2 per million British thermal unit (mmBtu), leave alone additional investment and new discoveries,' the minister said at an Assocham seminar here.

The oil ministry is rejecting the monetisation of new discoveries as their production will not be viable at the present price of $4.2 per mmBtu, added Moily. There has been a consistent decline in investment in the sector, which was around $6 billion in fiscal 2007-08 and dropped down to  $1.8 billion in 2011-12, he  pointed out.

'At the same time, it is pertinent to mention that Indian companies have already made an investment of $27 billion abroad and another $10 billion is in the pipeline. Therefore, it is evident that we have no choice left but to take immediate measures to make the domestic gas production sector viable,' he explained.

The minister said that certain measures are necessary to boost investments in the sector, including clearance of 31 NELP blocks from Defence and Environment, permission to explore in the mining lease area and revision of gas pricing. He, however,  categorically stated that he would not burden public sector upstream companies such as ONGC and Oil India Ltd (OIL) to share more subsidies. 'I assure (you) that I would fight it out,' Moily said looking at ONGC CMD Sudhir Vasudeva.
Showing optimism about the growth of the exploration sector, the minister said that by 2020, 50 per cent of oil imports will be reduced. He noted that the option before the country was to either keep the finds in the ground and continue importing gas at $11-12 or pay much a lesser price to domestic producers to bring the discoveries to production and cut foreign exchange outgo on imports.

'The Government is also fully aware of the impact of the price rise on consuming sectors like power and fertilisers,' he stated. '… And at this point of time, it will be relevant to say the revised price being fixed with effect from from April 2014 will be the output price for domestically produced gas and the government will later look into its impact on the consuming sector and take measures to ensure that these products are available at an affordable price,' he said.

He said that the government is a big gainer from increase in gas prices by way of higher taxes, royalty and profit petroleum. "Broadly speaking, every $1 per mmBtu increase in the gas price would result in an additional burden of about $1 billion. Out of this, approximately $400-500 million will come back to the Government in the form of royalty, increased profit petroleum, taxes and dividends,' he observed.

Officials said that the finds whose commerciality has not been approved by the Directorate General of Hydrocarbons (DGH) are spread over RIL's KG-D6 block in the KG basin and block CY-DWN-2001/2 in the Cauvery basin off the Tamil Nadu coast. In KG-D6, commerciality of D-5 and 18 had not been submitted due to low gas price. Declaration of Commerciality (DoC) of D-29, 30 and 31, which hold around 350 billion cubic feet of reserves that can produce 5-7 million standard cubic metres per day, has not been approved by DGH.

Also, D-35 find in the Cauvery basin block CY-DWN-2001/2 holding 719 billion cubic feet of gas that could produce 4 mmsmcd of gas was declared commercially unviable with DGH on May 14 stating that 'at a gas price of $4.2/ mmBtu, revenue generated is not adequate to meet the costs'.
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