Gas from D-6 will move in â€کBrent' band of $25-$65

Vol 11, PW 2 (31 May 07) Midstream & Downstream

Everyone wants to know the D-6 gas pricing formula.

Plausible market rumour suggests that – unusually - it is linked to Brent crude, and not, as you would expect, to the JCC (Japanese Crude Cocktail) or Henry Hub in the US. “Petronet-LNG’s contract with RasGas is tied to the JCC,â€‌ we hear.

“Even the gas price for the proposed Iran to India pipeline is tied to the JCC.â€‌ Reliance’s D-6 gas price, we hear, will move in a price band with a floor of $25 per barrel and a ceiling of $65 per barrel.

A rough calculation at today’s rates will tell you the final gas price will be around $4.70 per mmbtu at Reliance’s onshore gas terminal at Gadimoga village in Andhra Pradesh, some 30-km south of Kakinada. From Gadimoga, add transportation charges, taxes and duties.

“If you are in north India, you will get gas at around $4.70 plus $1.50 per mmbtu charges.â€‌ Adds another source: “Reliance wants to compete with long-term R-LNG from Dahej.

After 2009, R-LNG from Dahej will be costlier; the contract for a fixed price of $2.53 per mmbtu expires in December next year (2008).â€‌ Reliance, it seems, wants to keep its gas price 10-15 cents cheaper than R-LNG from Dahej after January 2009.

But will D-6 gas be available for power and fertiliser companies at the start of commercial production in mid-2008 Litigation between Reliance Industries boss Mukesh Ambani and his brother Anil, head of Reliance Natural Resources might make it a problem. On 3rd May, the Mumbai High Court ordered Mukesh to honour his promise of supplying 28m cm/d to Anil’s proposed power plant at Dadri in Uttar Pradesh.

There’s also the commitment to NTPC. Three years ago Reliance won a tender to supply NTPC with 12m cm/d.

Reliance later disputed certain terms in the contract and the matter is now in court. Put together, the gas commitment to Anil and NTPC is 40m cm/d.

“This is exactly how much Reliance is expected to produce initially from D-6,â€‌ says an observer. “Where is the gas for the fertiliser and power companiesâ€‌