GAIL says new D6 gas price has set a benchmark

Vol 11, PW 10 (20 Sep 07) Midstream & Downstream

Gas producers in India could face demands by customers for price cuts to match the $4.20/mmbtu price approved by Delhi for gas from Mukesh Ambani’s D6 block in the KG offshore.

Most vulnerable will be producers whose contracts are up for renewal and who face the prospect of competing with D6 gas once Reliance initially lands 20m cm/d around June next year and transports it to markets in western and northern India. Production will slowly ramp up to 80m cm/d.

An indication of what to expect is provided by GAIL chairman Dr. UD Choubey in a letter to the oil ministry this month.

Written before Delhi’s September 12 decision to approve the D6 price formula, Choubey asks the justification of GAIL paying $4.75/mmbtu for gas from the Panna-Mukta-Tapti fields offshore Mumbai. GAIL is buying 5m cm/d PMT gas at $4.75/mmbtu till March 31, 2008 when this contract will come up for renewal.

The ministry has yet to reply to Choubey. Contacted by this report, a senior ministry source confirms receipt of Choubey’s letter.

“We have seen the letter and (are) examining it,â€‌ says our source. “When he wrote the letter there was no finality about the (D6) pricing formula.

Now (that the formula has been approved), a view will be taken on the letter.â€‌ Other buyers of higher priced domestic gas could follow GAIL’s lead and protest, agrees the ministry.

Is the demand justified “Others could also make this demand,â€‌ agrees our source. “But how can there be uniformity in gas pricesâ€‌ See below list of domestic gas producers and current prices.

Gas producer Quantity Price in 2007 Price in 2008 Price in 2009 Panna-Mukta-Tapti 5m cm/d $4.75/mmbtu 4.75/mmbtu Revision due in April 2008 PMT 5m cm/d $4.08/mmbtu $4.08/mmtbu Revision due in April 2008 PMT 6m cm/d $5.70/mmbtu $5.70/mmbtu Lakshmi/Gauri 3m cm/d $4.08/mmbtu $4.08/mmbtu Ravva 1.1m cm/d $3.50/mmbtu $3.50/mmbtu Revision in Dec 2008 Ravva Satellite 0.9m cm/d $4.40/mmbtu $4.40/mmbtu Revision in Dec 2008 GSPC 3.6m cm/d $5/mmbtu $5/mmbtu Niko-Bheema 0.1m cm/d $5/mmbtu $5/mmbtu Niko-North Surat 0.2m cm/d $4.46/mmbtu $4.46/mmbtu Dahej R-LNG 18m cm/d $3.86/mmbtu $3.86/mmbtu $5.06/mmbtu