Stating that price of natural gas has been fixed by the Empowered Group of Ministers (EGoM) for a mutually agreed period of five years and any premature revision at this stage will put a huge financial burden on the government, the Petroleum and Natural Gas Ministry has rejected the demand by Reliance Industries Limited (RIL) to hike gas prices before April 1, 2014.

It has also rejected RIL’s demand that KG-D6 gas price should be tripled from April 1, 2014, when the current market rate of $4.20 per million metric British thermal unit (mmBtu) expires and comes up for review. RIL had written to the Joint Secretary (Exploration) A. Giridhar last month proposing to price natural gas it produces from the Krishna Godavari basin block in the Bay of Bengal at a rate equivalent to the price India pays for importing liquefied natural gas (LNG). It wanted KG-D6 gas to be priced at 12.67 per cent of JCC or Japan Customs cleared crude, plus $0.26 per mmBtu. At $100 a barrel oil price, gas will cost $12.93 per mmBtu.

However, in its September 18 communication to the EGoM, Mr. Giridhar has stated that the Petroleum Ministry would like to inform the EGoM that the request of RIL for price revision before the end of the mutually agreed period of five years had been rejected by the Ministry. Further, as felt by the Attorney General, “one cannot ignore the fact that the price has been fixed and such fixation is effective up to April 2014.” RIL has also said that gas production from the field is unlikely to go up in the next two years due to geological complexities.

Mr. Giridhar further explained that the price increase would result in huge financial burden on the government. Fiscal issues arising out of the revision in price of natural gas is critical input to any policy decision on the issue. “In view of the above, the Petroleum Ministry feels that revision of natural gas pricing is not appropriate before April 2014. The Ministry also agrees with the opinion given by the Attorney General that it is not appropriate to refer the issue of gas pricing to any regulatory authority as EGoM is considering the issue,” Mr. Giridhar has stated.

RIL had told the Petroleum Ministry that the price formula it had proposed would apply for all gas produced from KG-D6 block post March 2014. Besides the currently producing Dhirubhai-1 & 3 gasfields and MA oilfield, the formula would also apply to D2, D6, D19 and D22 fields — field development plan of which has been approved by the government. The government had, in 2007, fixed a price of $4.205 per mmBtu for gas from the KG-D6 block for the first five years of production. KG-D6 fields began production on April 1, 2009, and the present price expires on March 31, 2014. RIL wants that from April 1, 2014, gas be priced at import parity as is done in the case of crude oil.