EGoM's price for K-G gas binding on all till 2012

The pricing formula approved by an empowered group of ministers (EGoM) for gas from Reliance Industries' (RIL) block in the Krishna-Godavari basin will not be binding on all future gas from the country's deep waters.

The EGoM decision has ensured that the country's gas prices are in line with the market prices by approving a formula "" which yields a price of $4.20 per million British thermal unit (mBtu) "" for five years. "After the five-year period, a window for price escalation has been left open," said a senior oil ministry official. Though this is being touted as a benchmark for all gas from the country's deep waters, it is unlikely that any gas will flow from any of these blocks before 2012.

"The EGoM has put in place a formula that will take care of the producer-consumer tussle for now. RIL's gas will create a semblance of a gas market in the country only by 2012," said a Delhi-based analyst. Those opposing the formula maintain RIL cannot have a "market-determined" price as there is no market for the gas at present.

The formula has a constant, mentioned as C, which the EGoM revised to give a value of zero to keep the price constant for all consumers. "However, the value of this constant is zero only for the gas for which RIL had called for bids, which is 32 million cubic metres per day. For other gas, RIL's or any other producer's, the value of C has to be positive," said the official.

According to the EGoM's decision, the price of $4.20 per million British thermal unit (mBtu) that the ministerial group approved for gas from the D6 block will be the ceiling price for the 32 mcmd gas from the RIL's D6 block. For all additional gas from RIL's K-G basin block, or gas produced by other companies, the $4.20 per mBtu will be the floor price.

RIL has officially announced that peak production from the block is 80 mcmd, all of which, according to the last order of the Bombay High Court in May, is locked up with NTPC, Anil Ambani company Reliance Natural Resources (RNRL) and for RIL's captive use. Sources, however, say the production from the block is likely to be revised to 120 mcmd.

Moreover, both Oil and Natural Gas Corporation and Gujarat State Petroleum Corporation have discovered gas in the K-G basin.