BP seeks clarity on natural gas pricing

UK's BP plc has sought clarity from Oil Minister M Veerappa Moily on natural gas pricing and said decisions on key issues like allowing exploration well in a producing field should be expedited.

BP Region President & India Head Sashi Mukundan on November 14 wrote to Moily saying "a few issues...that have been pending for a long, and if resolved, could help unlock India's energy potential."

BP and its partner Reliance Industries have gas discoveries totalling around 5 trillion cubic feet in the now flagging KG-D6 block and NEC-25 block in Mahanadi basin that the two plan to develop in three-five years.

"In order to make these investment decisions, it is important to have clarity on the pricing structure," he said. "This volume will displace imports worth USD 50-75 billion at current LNG prices."

The Production Sharing Contract, he said, allows for arms-length market determined prices. "Oil produced from pre-NELP/NELP blocks and priced at import parity... a crude oil/liquid petroleum products linked pricing most appropriately represents a market linked price."

"The pricing structure needs to be flexible," he said, adding RIL-BP are seeking clarity on gas price post-2014 when the current USD 4.2 per million British thermal unit rate expires.

BP said RIL-BP have proposed to drill an exploration well within the D1&D3 producing fields in KG-D6 block but the Oil Ministry is proposing to ring-fence all such activities allowing cost recovery of only successful wells.

"Ring fencing exploration, development and production is inefficient and disadvantageous. Ring fencing will also increase the exposure and risk," he said.
BP wanted permission for continued exploration instead of 'ring fencing'.

Mukundan asked Moily for approval for three gas discoveries in KG-D6 and 2 in NEC-25.