With the government reluctant to approve its pricing formula for gas produced from coal seams, Reliance Industries invited bids from potential consumers, asking them to quote a rate indexed to the price of imported LNG.
RIL, in an advertisement issued in national and regional dailies, asked consumers to quote a figure in US dollars per million British thermal units that can be added to the price at which Petronet LNG ships gas in its liquid state (liquefied natural gas or LNG) from Qatar under a long term contract.
While its eastern offshore KG D6 gas price is fixed at USD 4.205 per mmBtu for the five years ending March 31, 2014, RIL had on September 16 demanded that coal bed methane (CBM) it plans to produce from its Sohagpur block in Madhya Pradesh should be priced by the same formula as Petronet's Qatar LNG deal.
It had sought 12.67% of the average price of crude oil imported into Japan (called Japan Crude Cocktail, or JCC) plus USD 0.26 per mmBtu. Petronet pays RasGas of Qatar a price of 12.67 per cent of JCC, besides incurring a USD 0.26 per mmBtu cost on transporting the gas in ships.
At a USD 100 per barrel JCC average, CBM according to RIL's September formula would cost USD 12.67 per mmBtu plus USD 0.26 per mmBtu, totaling USD 12.93 per mmBtu. Great Eastern Energy Corp is selling CBM produced from its Raniganj block in West Bengal at USD 6.79 per mmBtu, while domestically produced natural gas is priced at USD 4.2 to USD 5.73 per mmBtu. Essar Oil has proposed a price of USD 4.20 per mmBtu for its CBM.
RIL, in advertisement has retained the pricing formula and asked users to quote a positive or negative number that can be added to this pricing formula.
The company is also demanding a marketing margin of USD 0.15 per mmBtu from CBM users, even though its USD 0.135 per mmBtu marketing margin charged on KG D6 gas has been sent to oil regulator PNGRB for review.
Sources said the Oil Ministry was reluctant to approve the price sought by RIL in September last year as nowhere in the world is domestic gas priced at LNG rates. Moreover, LNG costs more than domestic gas because of the huge investment that goes into putting up a liquefaction plant that turns natural gas into a liquid state by cooling it at sub zero temperatures so that it can be shipped.
(Sourced from www.moneycontrol.com)
