BP rubbishes government gas-pooling proposal

Vol 15, PW 15 (09 Feb 12) People & Policy

BP has come out strongly against the proposed ‘gas price pooling’ regime recommended by a government panel headed by Planning Commission member Dr.

Saumitra Chaudhuri. Hiten Mehta, a vice president at BP’s India arm, sent a 21-page presentation and two-page covering letter to oil ministry director gas Neeraj Mittal on January 25, highlighting the company’s concerns.

As a 30% stakeholder at the gas-producing D6 block and 20 other Reliance-operated NELP blocks, BP is well placed to comment. Mehta says the Chaudhuri panel report contradicts the government-backed NELP policy, which became official policy in 1995 and which “promises” domestic oil and gas marketing freedom.

He also objects strongly to a suggestion that Indian gas prices should be benchmarked to ‘well-head’ prices in the US or LNG exporting countries like Qatar, Malaysia and Australia. “This is flawed logic,” says BP.

“We fear domestic gas production may be affected if this argument is accepted.” BP stresses that the US, Qatar and Australian producers can comfortably absorb a low gas sale price as they have lower development costs, easy access to infrastructure, and deal with different geology.

“A (low) price may be sufficient for producers there but will result in the development of only a fraction of reserves in India where field sizes are smaller and infrastructure costs higher,” adds BP. “Low domestic gas prices could lead to lower domestic production, increased LNG imports, and increased foreign exchange outflows.

” BP says domestic gas prices should be benchmarked to the ‘LNG import parity price.’ Such a calculation, says Mehta, would reflect the high prices India must pay to import LNG if domestic gas is unavailable.

BP’s comments come in response to an invitation for reaction to the ‘Report of the Inter-Ministerial Committee on Policy for Pooling of Natural Gas Prices and Pool Operating Guidelines’ submitted in August. The deadline for submission was December 31.