Gujarat Gas and Cairn agree gas price for CB-OS/2

Vol 4, PW 21 (22 Nov 00) Midstream & Downstream

We already know Cairn Energy confidently predicts it can produce significant gas from CB-OS/2 in Gujarat.

What we didn't know is at what price it plans to sell the gas. Until now, that is.

Petrowatch learns Cairn and the Gujarat Gas Company, where British Gas has a 65.14% stake, have agreed that the latter will pay $3.95 per mmbtu. We also know that Cairn plans to sell the bulk of its gas from CB-OS/2 to a new company called British Gas Trading Company.

We understand this company will act as a financial intermediary between Cairn Energy and Gujarat Gas, which will on-sell to its customers. Gujarat Powergen Energy Corporation, which operates a 655-MW power plant at Paguthan, and where Powergen of the UK has an 88% stake, will receive a major portion of the CB-OS/2 gas.

In preparation, British Gas is on the look-out to buy a "licensed dealership" with a minimum of one year's trading history in Gujarat. In so doing, the company hopes to save an estimated 22% sales tax on gas it sells to customers.

Unlike "registered dealerships," which have to pay 22% sales tax, a "licensed dealership" can pass on the tax to customers. In August, Cairn managing director Bill Gammell told Petrowatch CB-OS/2 could begin producing a minimum of 70m cubic feet a day by first quarter 2002, possibly rising to 140m cf/d if results from the appraisal are good.