GSPC gets 34 bids for KG block gas at premium rate

Co?s KG field to begin production by H2 FY14

Gujarat State Petroleum Corporation (GSPC), which is set to commence commercial production at its prized KG Basin (Deen Dayal West) gas block by the second half of this fiscal, has received 34 bids for gas at a price of over $8.5/mmBtu. This is much higher than the current government-set price of $4.2/mmBtu for gas from nominated and NELP fields.

GSPC is seeking an approval from the oil ministry for a pricing formula where the base price works out to be $8.5/mmBtu. The company recently held an e-auction for gas from the block and received the bids.

The higher price quoted by the bidders, according to analysts, confirms the huge demand for gas in the country and denotes the price the market would determine. GSPC, a source familiar with the development said, received bids for 35.96 million standard cubic meter per day (mscmd) of gas while the total available gas is only about 5.24 mscmd.

The higher price quoted by the bidders also validates the Rangarajan Committee?s view that gas price would need to be nearly doubled.

Rangarajan panel had observed that the current price for domestic gas was out of sync with global rates and suggested an interim ?hybrid producer price? derived by averaging international hub prices with cost of imported liquefied natural gas (LNG) for the next five years.

As per the committee?s formula, the price works out to $8 per mmBtu as opposed to $4.2 per mmBtu fixed by an empowered group of ministers (EGoM) for nominated and NELP fields, including Reliance Industries? KG-D6 block. The EGoM will meet on May 7 to consider the price revision proposed by the Rangarajan panel.

?This (the response to GSPC tender) shows that there is huge demand for gas in the country at the price above the current government administered price of $4.2/mmBtu. The GSPL price is also lower than the import price of LNG at $13 mmBtu or the spot and short term LNG prices which hover in the $15-18/mmBtu range,? the source said.

The RIL-BP combine, however, hold that the Rangarajan Committee recommendation of doubling domestic natural gas price to $8-8.5 per mmBtu will be inadequate for bringing high risk deep-sea discoveries to production.

The directorate general of hydrocarbons (DGH) has certified reserves in the block at 2 trillion cubic feet (TCF), a far cry from 20 TCF as proclaimed by the Gujarat government in 2005. The plateau gas production from the DDW field is expected to be around 5.24 mscmd.

GSPC, Jubilant Offshore Drilling (JODPL) and GeoGlobal Resources (GGR) signed the PSC for GSPC?s DDW block on February 2003 with the government of India under NELP-III block. GSPC holds a stake of 80% in the block while 10% each is held by JODPL and GGR.

The gas will land in Mallavaram in Andhra Pradesh and transported to customers up to Gujarat through Reliance Gas Transportation Infrastructure East-West pipeline. The block was earlier scheduled to start production in June 2012, but this was deferred owing to operational issues. The Gujarat government-owned GSPC had announced the gas find at the DD-west block in mid-2005.