Govt may allow market price for RIL KG gas

Source : Business Standard

The government is likely to clear the price quoted by Reliance Industries Ltd (RIL) for its gas from the Krishna-Godavari basin without seeking to control the price. 

“Depressing gas prices artificially will lead to arbitration, which we cannot hope to win,” said a government official. He said a meeting in the law ministry a couple of days ago discussed the legal issues that might come up if the gas price was administered. 

“The case for depressing prices was found to be weak,” the official added. 

He said as the production-sharing contract allowed for a market-driven price, the government could not afford to set a benchmark for administering prices under the New Exploration and Licensing Policy (NELP) as the pricing formula for the RIL gas would apply to gas from the country’s other deep waters as well. 

“There are many such issues which we cannot overlook,” the official added. 

RIL, along with partners Oil and Natural Gas Corporation (ONGC) and British Gas, is selling gas from the Panna-Mukta and Tapti fields for around $4.75 per million British thermal unit (mBtu). It has “discovered” a well-head price of $4.33 per mBtu for its K-G basin gas.  

The gas pricing issue is not likely to go to the petroleum regulator, though officials in the petroleum ministry say if the regulator decides the price, there will be no accusations of favouritism. “However, gas pricing is outside the scope of the regulator in its present form,” a petroleum ministry official said. 

The fertiliser and power ministries, which together consume around 70 per cent of the gas, said they should get supplies at a subsidised rate of less than $3 per mBtu. These companies get gas at an administered price from ONGC and Oil India or use expensive naphtha or fuel oil. 

They said since there was no efficient gas market in the country, as demand far outstrips supply, RIL could not claim to have discovered a market-driven price for its gas. 

The government has been deliberating on the issue through a committee of secretaries led by the Cabinet secretary. “We are going to reach a decision very soon,” the government official said. 

The country’s deep water and ultra-deepwater regions are believed to hold enough gas to meet the country’s demand. The present demand is double the supply of around 85 million cubic metres per day (mcmd). 

The government has projected the 2011-12 demand at 283 mcmd, against the domestic production of 108 mcmd and LNG imports of 82 mcmd. 

Link :  http://economictimes.indiatimes.com/The_making_of_the_gas_market/articleshow/2261145.cms

Hi Basant Ji and other TEDes,

This is an interesting thread, but not many posts for long time. I am a newcomer to this field, but looking in to the Indian situation and the other developed countries it seems that Gas distribution has lots of Market in India.

Reasons for the same:

1. Uninterrupted Gas supply.

2. No problem with applying for cylinder, delay and stuffs like that.

3. Safety is more, as equipped with Regulator, Alarm and stuffs like that.

4. In other developed countries it is treated as basic necessities in life, so once started in India, it can capture huge market.

5. I have tried to ask ladies in my home and other acquaintances, they said they will readily take if something like that is available.

Looking into the companies (though I don't have much idea:(() RNRL seems to be good, but still having problem with KG basin.

http://economictimes.indiatimes.com/News/News_By_Industry/Energy/Oil__Gas/Reliance_RNRL_fail_to_settle_KG_gas_dispute/articleshow/2774617.cms

If this problem is solved then it has huge potential. Moreover RNRL price is interesting now a days (Problem is Operating Margin is negative in Mar 07) Do anybody has any information on the outcome of this case?

Another thing, if this field is interesting then any other common stock which can be uncommon in long term?

Thank in advance for your guidance.

Regards,