RIL scouts for K-G gas buyers

With the price of gas from its fields in the Krishna-Godavari basin expected to be higher than rivals, Reliance Industries is targeting automobiles and domestic users because power and fertiliser plants may not be able to afford it.

The country's largest private sector company has worked out a pricing formula for its K-G basin gas, where the price of the gas that consumers pay across the country would be above $6 per million British thermal unit (mBtu). However, the country's power and fertiliser companies, which consume more than 80 per cent of the total gas demand in the country, would not be able to afford such high prices of gas.

GAIL India, the country's largest transporter and marketer of gas, currently buys gas from the Panna-Mukta and Tapti fields for $3.86 per mBtu. The field, operated by a consortium of British Gas, ONGC and Reliance, had a few years back wanted GAIL to pay $4.8 per mBtu for the gas, but GAIL went to the petroleum ministry saying its consumers, mainly power and fertiliser plants, are not ready to pay prices higher than $4 per mBtu.

"As soon as price of gas goes above $4 per mBtu, gas starts replacing coal as a fuel in power and fertiliser plants," an analyst said. An official close to Reliance said that the company was more interested in selling a major part of its 80 million standard cubic metres a day (mscmd) of gas to industrial users, the automobile industry and for domestic use in cities.

The industry predicts that in the next 5-6 years almost 30 per cent of the current consumption of petrol, diesel and LPG in the country would be replaced by gas, even as city gas distribution projects takes off in many cities. "The realisation from selling CNG and piping it to domestic users in cities is almost above $8 per mBtu," an analyst said.

At 85 million standard cubic metres a day (mscmd), gas supplies in the country are currently less than half the demand of around 195 mscmd. Consumption may rise to 400 mscmd a day by 2025 if the economy grows at the projected rate of 7-8 per cent a year.

Reliance, which discovered gas in the K-G basin block in 2002, will start producing 40 mscmd by June 2008. This will be raised to 80 mscmd by the middle of 2009. The estimated reserves in the blocks is close to 11.2 trillion cubic feet.

The K-G basin gas price would be linked to the price of the Japanese crude cocktail, which is the benchmark for pricing liquefied natural gas in Asia.

The Reliance formula has three components, where one will be the price of the Japanese crude cocktail, and another would be a constant and the third would be bidding by the consumers.