Reliance, BP to get govt capped price of $4.06 for new gas from KG-D6 field
New Delhi: Reliance Industries and its partner BP will get only $4.06 a unit for the new gas they have started to produce from the eastern offshore KG-D6 field even though they have discovered a higher rate in an open market auction, sources said.
Reliance-BP in November 2019 auctioned initial gas from the R-Series field at a biddable percentage of Brent crude oil price.
If Brent crude oil stays in the current range of $50 to 51 a barrel, the price comes to $4.2 to 4.4 per million British thermal unit, two sources at the buyers of R-Series gas said.
Even though operators have pricing freedom, they can't sell gas at a rate higher than the cap the government notifies every six months. The cap for six months to March 31, 2021, is $4.06 per mmBtu and so Reliance-BP would get only that amount for the remainder of the current fiscal, they said.
Essar Steel, Adani Group and state-owned GAIL in November 2019 bought the majority of the initial 5 million standard cubic meters per day of gas planned to be produced from R-Series in the KG-D6 block by bidding between 8.5 and 8.6 per cent of dated Brent price.
Emails sent to Reliance and BP for comments remained unanswered.
The rate discovered in the November 2019 auction at the lower end of the Brent price band is the same as the one that Reliance got in the first five years of production from Dhirubhai-1 and 3 and MA fields in the KG-D6 block. These fields ceased to produce a few months back.
Reliance got $4.205 per mmBtu for gas from D1 and D3 and MA fields during April 2019 and March 2014. It would have got double of that rate if a new formula proposed by the Rangarajan committee was approved but the new BJP government scrapped it and brought a new formula on pricing gas at rates prevalent in export surplus nations such as the US and Russia.
The rates came to $5.05 in 2014 and are currently at $1.79 per mmBtu.
Sources said the government in 2016 allowed a higher price for any new gas to be produced from a difficult project such as the deep sea field. R-Cluster field fell in that definition and gas from it was free to be sold but subject to the price cap.
The price cap for October 2020 to March 2021 period is $4.06 per mmBtu, down from $5.61 in the previous six month.
Reliance and BP had on November 18 stated that they have the commencement of natural gas production from Asia's deepest gas project, R-Cluster or R-Series.
The two firms are investing $5 billion in bringing to production three deepwater gas projects in block KG D6 R-Cluster, Satellites Cluster, and MJ which together are expected to meet about 15 per cent of India's gas demand by 2023.
