Come clear on gas pricing, BP writes to Petroleum Minister

Stating that investments or import substitution worth $100-150 billion were waiting to be unlocked, British Petroleum Plc, which partners with Mukesh Ambani owned Reliance Industries Limited (RIL) in India, has sought putting in place a clear policy on exploration and pricing of gas in order to effectively develop these resources and unlock this huge potential.

The BP group Region president and Head of Country (India), Sashi Mukundan during his recent meeting with the Petroleum and Natural Gas Minister, Veerappa Moily had handed over a detailed memorandum seeking his intervention resolving critical issues that have been pending for long, and if resolved, could help unlock India’s energy potential. The meeting comes amid the ongoing tug of war between RIL and the Comptroller and Auditor General (CAG) over the audit of KG D6 block up to FY2011-12.

“There is currently more than 5 trillion cubic feet (TCF) of discovered gas resources in our KG D6 and NEC 25 blocks, which are awaiting approvals. These discoveries could add another 25-30 mmscmd of potential production in next 3-5 years following approvals. This alone could unlock $50-70 billion of value to the nation through import substitution. Clarity in terms of market price for this gas is imperative in order to develop these resources,’’ the November 14 dated letter states.

Further, it said the BP-RIL partnership is also starting to pursue a renewed exploration drilling programme to find more resources using BPs experience in exploration. The prospects identified, if successful, can add over 10 TCF of yet to find resources with the potential to unlock $100-150 billion to value through import substitution.

Pitching for a new gas pricing policy, Mr. Mukundan said: “a crude oil/liquid products linked pricing most appropriately represents a market linked price – as it tracks alternate fuels that gas would replace in the first instance and the cost of exploration and production serves. The pricing structure needs to be flexible and reflect the market for alternate fuels that it would replace in order to ensure that the gas sold remains competitive at all times.’’

Referring to the KG D6 block, the letter said the contractor is keen to drill an exploration well in the existing production areas to test a deeper resource potential. “If successful we could add production through the existing facilities quickly. Continued exploration in a producing area is a standard global operating practise that helps maintain sustainable production levels and extends the utilisation of existing infrastructure. The government has proposed ring fencing such activity in order to protect the current government take from the block. Ring fencing exploration, development and production are inefficient and disadvantageous. Ring fencing will also increase exposure and risk to the contractor, especially in case of difficult and marginal discoveries. Further, resetting of royalty, profit share and taxes in most cases will be disadvantageous to the government and violates the terms of PSC,” the letter states.