Gujarat govt firm seeks $13 gas price

Gujarat government company GSPC has asked the government to approve a price of about $13 for the natural gas it plans to produce from its field in KG basin this month.

Gujarat State Petroleum Corp (GPSC) is almost ready to begin production from its Deen Dayal West (DDW) gas field in Block KG-OSN-201/3 off the Andhra coast and wants a price approved immediately.

GSPC has written two letters to the Oil Ministry since the new government led by Narendra Modi came to power in May, requesting approval of its pricing formula as per provision of the Production Sharing Contract (PSC), so that DDW can begin producing and gas sales can commence, official sources said.

The Gujarat government-owned company wants to price DDW gas at a rate equivalent to the price at which India imports long-term gas in its liquid form (liquefied natural gas or LNG) from Qatar.

Sources said GSPC had last year run a price discovery process using the Qatar price formula, generating demand which was more than 12 time the available gas, and sought approvals.

At $100 per barrel oil price, this price comes to $12.93 per million British thermal unit, three-times the current rate of $4.2 paid to domestic producers.

While the previous UPA government had ignored the price discovery by GSPC and approved a formula which would have doubled the price of all domestic gas to $8.4, the new government has deferred its implementation till September 30 to see if users can pay this new price.

GSPC, they said, has told the Oil Ministry that it is required to execute Gas Sales Agreements (GSA) with customers. The customers, in turn, are required to execute the Gas Transportation Agreement (GTA) with a transporter, both of these processes would entail significant time.

Stating that it will start production this month, GSPC said it produce about 28 million standard cubic feet per day (0.8 mmscmd) from two development wells (DDW#D1 and DDW#D3), which will be ramped up to 55 mmscfd (1.55 mmscmd) after addition of two more development wells by February, 2015.

GSPC told the ministry that has invested substantial capital to develop the DDW gas discovery and the government should approve a rate as per its 2013 price discovery, they said.

Petronet LNG Ltd, of which Oil Secretary is the Chairman, pays RasGas of Qatar a price of 12.67% of the average price of crude oil imported into Japan (called Japan Crude Cocktail, or JCC). Besides, it incurs a $0.26 per mmBtu cost on transporting the gas in ships from Qatar to India.

While the price sought by GSPC is excluding taxes and other levies, the firm will charge an additional marketing margin of Rs 10.21 per mmBtu.