Tapti gas will be sold at market price after April 2006

Vol 9, PW 13 (06 Oct 05) Midstream & Downstream

British Gas and partners ONGC and Reliance are gearing up to sell the entire gas output from Panna, Mukta and Tapti at market prices after April 2006.

Of the 10m cm/d gas production from the fields, only 4m cm/d is today being directly sold at market prices and the rest is being sold to GAIL at the benchmark Dahej regassified LNG price of $3.86 per mmbtu for onward sales to power and fertiliser customers. We will soon begin talks with the government to release us from the obligation to supply gas to GAIL, a consortium source tells this report.

Our intention has always been to market the gas directly in line with the PSC. Well before April 2006, the consortium wants to float a tender to choose buyers for the 6m t/y that it is selling to GAIL.

Whatever price emerges, it will certainly be higher than the $4.08 per mmbtu at which the consortium is contracted to sell 4m cm/d to Gujarat Petroleum and others for the next three years. But will GAIL give access to the HBJ pipeline All our contracts will be ex-Hazira, we learn.

Customers will take delivery from Hazira and make their own transmission arrangements with GAIL. Consortium sources dont rule out continuing its present arrangement with GAIL for the supply of 6m cm/d, provided GAIL agrees to pay the market price.

By April 2006, total gas production from the three fields is likely to be 11m cm/d. Does the consortium need government permission to break free from its arrangement with GAIL In theory no, but in practice its better not to antagonise the government, we are told.

BG is not Enron. If Enron were still operator it would have taken the government to court - and it would have won.

The PSC is unambiguous on this issue. The contract is very clearly worded.

It has a precise formula to calculate the price after seven years of production. BG, we are told, made a significant concession to the government when it agreed to sell to GAIL for a year at $3.86 per mmbtu.