RIL demands freeing of gas pricing

Reliance Industries on Monday demanded freeing of natural gas pricing saying that the scarce fuel should be priced at the rates which consumers are willing to pay.

"The value of a good is determined by how much you are able to pay. It is not determined by how much I am going to sell at," RIL president and COO (Business) B Ganguly said at the World Energy Policy Summit in New Delhi.

RIL gets $4.2 per million British thermal unit for the gas produced from its KG-D6 fields in the Bay of Bengal. This rate is lower than $4.30 per mmBtu that Cairn India gets in the neighbouring Ravva Satellite field in the same basin and $5.73 per mmBtu price of UK's BG Group-operated Panna/Mukta and Tapti fields in western offshore.

The company has been pitching for a market determined price for KG-D6 gas after the current rates expire in March 31, 2014.

"Unless that freedom is there for the consumers to choose value, I don't think the market is integrated," he said pitching for freeing the market.

Ganguly who refused to be drawn into the pricing of KG-D6 gas, said "market should be free" and integrated.

Cairn India CEO P Elango said clarity on gas pricing was essential as the sector involves huge investment risks.

State-owned gas utility GAIL India chairman and managing director B C Tripathi too agreed that pricing clarity was a must for both upstream exploration and production sector as well as downstream consumers like power and fertiliser.

Recently, RIL in a memorandum of the Rangarajan Committee, which is examining terms of future contracts for exploration of oil and gas as well as basis for gas pricing, said only market related prices can provide an incentive to help produce the vast domestic resources that either concentrated in small pools or are located in technologically challenging ultra deepsea.

"RIL (and partner) BP have around 5.5 Trillion cubic feet of discovered gas resources which would require large amount of risk capital to be invested. Most of these discoveries would require price of more than $10 per mmBtu," it had said.

KG-D6 output has slipped drastically due to a host of problems and the company is arguing that restoring production would need higher investments.