C. Rangarajan's formula for KG natural gas price not a reality for DGH yet

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Assessing the commerciality of D 39 and D 41 fields based on the current gas price would render them unviable. Reuters Assessing the commerciality of D 39 and D 41 fields based on the current gas price would render them unviable. Reuters
SummaryGovernment may have approved the C. Rangarajan formula that could nearly double the price of domestically produced natural gas...

The government may have approved the C. Rangarajan formula that could nearly double the price of domestically produced natural gas starting FY14 given the current rates of benchmark prices cited, but the upstream hydrocarbon regulator doesn’t seem to concur.

In what virtually deprives Reliance Infrastructure Ltd of two gas discoveries — D 39 & D 41 located in the KG-DWN-2003/1 block — the Director General of Hydrocarbons (DGH) has insisted that the commerciality of the fields would be assessed on the basis of current gas price of $4.2/million metric British thermal units (mmBtu).

Assessing the commerciality of D 39 and D 41 fields based on the current gas price would render them unviable. Production from D 39 and D 41, incidentally, are scheduled to begin at a much later date.

Even though the Cabinet in July approved a new gas-pricing formula starting next financial year, the DGH, in a letter to the oil ministry dated December 10, insisted on assessing the two RIL Nelp 5 discoveries at the current gas price.

The DGH’s stand is despite the fact that in a meeting held by the Planning Commission (power and energy division) in September to assess the half yearly performance of the sector, it was observed that Nelp blocks previously deemed unviable at $4.2/mmBtu must be re-examined. “Some of the Nelp fields, which were not viable at $4.2/mmBtu, maybe viable with the recently announced price by the Centre,” as per minutes from the meeting.

A third well — D 52 — in the same 2003/1 block was earlier left stranded as RIL did not undertake drill stem tests (DST) in the well, thus DGH finding them non-compliant of the production-sharing contract (PSC). The 2003/1 block sits next to RIL’s flagging KG-D6 fields.

As the D 52 well was found non-compliant in late 2011, RIL submitted a revised field development plan (FDP) in April 2012 to develop only D 39 and D 41 with a capex of $650 million.

The discoveries lie at depths ranging between 1,500-2,300 metres. D 39 and D 41 hold around 400 billion cubic feet (BCF) of in place gas reserves that can produce for 7 years. The DGH on December 10 wrote to the oil ministry that it has already communicated its views on the issue through a letter on January 23, according to which the two discoveries — 39 and D 41 — are

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