Dudley-Ambani meet PM; seek clarity on gas pricing

Dudley-Ambani meet PM; seek clarity on gas pricing

Europe's second biggest oil firm BP plc head Bob Dudley and his partner Reliance Industries Chairman Mukesh Ambani today asked the government to lay a clear roadmap for market driven pricing of natural gas as current sub-market rates were not drawing big investments.

On his second visit to India in as many months, Dudley along with Ambani met Prime Minister Manmohan Singh and senior government functionaries to brief them about their investment plans as also to seek clarity on regulatory issues.

The duo also met Planning Commission Deputy Chairman Montek Singh Ahluwalia and had sought a meeting with Law Minister Ashwini Kumar, two key members of a ministerial panel on gas pricing and allocation.

Dudley, who made a day-long stop-over here on the way to Shanghai, pressed for clarity on pricing of natural gas that will be implemented upon expiry of the USD 4.2 per million British thermal unit rate a year from now.

"They are very concerned, they are very keen that government take a view (soon). That process is underway. I wasn't able to tell him what we are going to decide," Ahluwalia told reporters here. "I did say that there is an EGoM (Empowered Group of Ministers) and it will be considering Rangarajan Committee (recommendation)."

Dudley, who also met Oil Secretary Vivek Rae, briefed the Prime Minister and others about the investments BP along with RIL plans to make in quickly putting satellite gas fields in the flagging KG-D6 block as also bringing discoveries in eastern offshore NEC-25 block to production.

"We are the largest investor in India. We have come to review progress of plans," he said, adding that BP was "very pleased" with the events that allowed the firm to drill an exploration well on the currently producing fields in KG-D6 block well after the expiry of exploration phase.

Dudley said there may be "promising indications of resources" in the well drilled 2-km below the currently producing Dhirubhai-1 & 3 fields and BP-RIL were also "discussing plans for R-Series satellite development."

BP-RIL want the government to spell out a clear roadmap for migrating to market determined gas pricing in the next 3-5 years so as to provide clarity to producers to make investment decisions.

Dudley's BP and Ambani's RIL hold that the Rangarajan Committee recommendation of doubling domestic natural gas price to USD 8-8.5 per mmBtu will be inadequate for bringing high risk deepsea discoveries to production.

A panel headed by C Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, observed that the current price for domestic gas was out of sync with global rates and suggested an interim "hybrid producer price" derived by averaging international hub prices with cost of imported liquid gas (LNG) for next five years.

The price, as per the formula suggested by the Rangarajan Committee, comes to USD 8-8.5 per mmBtu as opposed to USD 4.2 per mmBtu that BP-RIL get for gas from their eastern offshore KG-D6 fields.

"The price determined through the Committee's recommended formula is at a 40-50 per cent discount to the existing free market price of imported LNG into India," BP India head Sashi Mukundan had last month written to Pulok Chatterji, Principal Secretary to the Prime Minister.

At the proposed price, he said, "new production will come only from existing producing fields" but "technically challenged resources and projects in deep water and high risk exploration will be uneconomical to develop and produce".
He added: "Most of the discovered deep water/high pressure-high temperature resources (about 10 Trillion cubic feet including 4-5 Tcf with RIL-BP) will not be economically feasible to develop at the resultant price and their lack of development will only exacerbate India's natural gas deficit."

Ahluwalia said Dudley-Ambani also briefed him about their "assessment of production they could get from D6".

Output from KG-D6 block has this month fallen to all-time low of 16.5 million standard cubic meters per day and BP-RIL see an upside of at least 30 mmscmd if satellite and smaller fields surrounding the currently producing main fields are quickly brought into production.

Also, Ambani briefed "me about development of (RIL's) 4G (telecom venture)...what are the prospects looking ahead," Ahluwalia said.

Mukundan had on March 8 written that the pricing formula suggested in the interim to gas-on-gas competition (free market scenario) was not the "arms-length market determined" price as provided in the Production Sharing Contract like the one signed for KG-D6.

PSC provides for discovering a market price through open tender and does not provide government dictating a rate.
"It was on the basis of this PSC that BP made its large investment (of USD 7.2 billion) in the India," he wrote.

In case the Rangarajan committee suggested pricing is chosen as starting point for market determined pricing, the government should detail "a clear roadmap to transition in the next three-five years to a market determined price (LNG or alternate liquid fuels parity).

"Such a roadmap will provide the clarity and certainty necessary to enable long-term investments by the producer, importers, and the consumers of gas," he said.
The landed price of imported liquefied natural gas (LNG) at USD 13-14 was representative of the "arms-length market price" for gas, he added. 

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