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BP wants 3x hike in KG-D6 LNG price

BP Plc demanded that natural gas price,it produces with partner Reliance,be hiked.

Written by Agencies | New Delhi | Published: February 27, 2012 5:59:47 pm

BP Plc,Europe’s second-largest oil company,today demanded that natural gas,it along with its partner Reliance Industries produces from KG-D6 fields,should be priced at import parity,which would be at least three times the current price of USD 4.2 per mmBtu.

BP,which last year bought 30 per cent stake in 23 oil and gas blocks of RIL,including the showpiece KG-D6,said import parity would be a rate equivalent to the price at which gas in its liquid form (liquefied natural gas) is imported from Qatar on a long-term contract.

Like RIL,BP too appeared to be fixated that only Qatar LNG price,which is indexed to crude oil,is the right import parity price and choose to ignore the recent long-term deal that state-owned GAIL India signed to import LNG from the US at American gas index Henry Hub-linked rates.

At USD 100 per barrel oil price,Qatar LNG will cost USD 12.67 per million British thermal unit. GAIL’s US contract would be priced at less than USD 9 per mmBtu.

“We need to make sure predictable market pricing regime as envisaged in Production Sharing Contract. Crude oil (produced in India) is sold at import parity,refinery products are sold at import parity (and) we hope that we get similar kind of pricing regime for gas as well,” BP India head Sashi Mukundan told reporters here.

If approved,India will probably will be the first country in the world to have domestically produced gas priced at equivalent to LNG rates. LNG is always priced higher than domestic gas because of the cost involved in converting gas into its liquid form at sub-zero temperature,then shipping it in cryogenic vessels and again regassifying.

Also,Qatar LNG is a rich gas containing C2 (propane) and C3 (butane),which are used for manufacturing petrochemicals and LPG while KG-D6 gas is a lean gas containing just C1 (methane) that can be used only as fuel.

Mukundan,firstly,said a rate linked to the price at which India imports LNG should be applicable to new gas that RIL-BP would produce from the KG-D6 and other blocks.

But later he said BP agreed with operator RIL’s demand for an increase in price of gas currently being produced from Dhirubhai-1 and 3 (D1&D3) fields in KG-DWN-98/3 block even though the Mukesh Ambani-run firm had agreed for USD 4.20 per mmBtu rate for five years ending March 31,2014.

Mukundan refused to hazard a guess on the likely output from KG-D6 where output has fallen from 61.5 million cubic meters per day achieved in March 2010,to about 35 mmcmd currently,saying the RIL-BP are working on an integrated development plan for all of the 18 discoveries made in the block and would come out “sustainable production” numbers soon.

BP,however,gave confusing signals on output from currently drilled wells on D1&D3 gas fields. While RIL has drilled 22 wells,it has so far put on production only 18.

Asked when the four wells which were drilled in July last year would be brought to production,Mukundan said “we feel there is no need as they will not help in increasing output” and will drain the current resources.

When quizzed if those four wells will never be put on production,he said: “I am not saying they will never be. May be in future we will… I dont know.”

It is widely speculated that RIL-BP may be looking at increase in gas price before raising output. “If we can get right approvals in right sequence,production can come up in end-2014-15 weather window (December to March),” he said.

While RIL in April 2009 put to production D1&D3 gas finds,it got investment approval for four satellite last month. A big gas discovery in the R-cluster was declared commercial in November last year but three other were found to be economically unviable by the oil regulator,Directorate General of Hydrocarbons (DGH).

“Our initial focus is on the KG-D6 block,and the RIL and BP teams are looking at all options to increase production from the block,” Mukundan said. “Our joint teams are working to develop the full potential of the block.”

RIL-BP,he said,would be presenting to the government anIntegrated Full Block Development Concept in the next few weeks,which will maximise use of the entire existing infrastructure to produce the balance of the discoveries and minimize new infrastructure needed.

“We aim to enhance production to a sustainable level from both the existing fields and “next wave” of developments – D6Satellites and R-Series (fields in KG-D6 block) and the (Orissa offshore) NEC-25,” he said.

“Clarity on gas pricing is vital for the development ofthe “next wave” of projects which will add production beyond 2015,but for which investment decisions need to be made in 2012.

“We believe a forward looking gas policy framework with closer integration to global energy markets allowing marketingfreedom with a transparent market determined price will help future projects come on-stream,” he added.

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