Monday, July 16, 2007

KG basin Gas pricing imbroglio

In a longish article, today’s ET covered the issues very succinctly. Take a look at the full article in page 13. I am not able to find the web link for it.

I will note only some facts which are worthy of note. It is for us to draw conclusions from the facts. I give my conclusions at the end.

Seven years ago India’s oil import bill was $15 bn; but today it is about $57 bn.

How does KG basin gas compare with other options?

  1. Imported fuels are costly: Naphtha costs about $16 per mmbtu; Imported LNG costs about $7.5 per mmbtu; Petronet LNG is selling imported gas at $6.67 per mmbtu.
  2. RIL’s price discovery exercise has resulted in a price of $4.33 per mmbtu.
  3. Panna-Mukta-Tapti (PMT), a joint venture between BG, Reliance and ONGC is sold at $5.77 per mmbtu.

Average costs of power from various alternatives:

  1. Cost per unit from oil-fired plant is almost Rs. 6 per unit including variable cost.
  2. At $4.86 per mmbtu, the per unit cost will be around Rs. 3 to 4.

RIL had bid for supplying natural gas to ONGC for the latter’s Kawas and Gandhar plants at $3.18 per mmbtu in 2003. While RIL says that ONGC ignored a signed contract sent by it to ONGC, the latter says that RIL had reneged on the contract. The matter is in court.

Internationally, gas prices are always linked to crude prices and have soared in recent years as crude kept rising. For instance, imports into Thailand and Myanmar are nearly $6 per mmbtu while prices in the US, UK, Germany are $6 to 8 per mmbtu.

The spot market price of imported LNG is $8 to 9 per mmbtu. For long term contracts (7 to 10 years), LNG is available at $6 per mmbtu.


  1. As we are pinning our hopes on NELP (New Exploration and Licensing Policy) for oil and gas exploration, if we have to attract large and serious international players into our oil and gas exploration sector, we have to show a serious commitment to reform and demonstrate to the world that we don’t renege on contractual commitments made by us.
  2. It is time we accept the reality that fuel prices the world over will keep fluctuating, based on market conditions. Crude, which was available for as low as $8 a barrel in 1998, today is more than $70. There is no guarantee that the prices will not fluctuate again. So, every country has to take these fluctuations in its stride and strike long term contracts to the extent possible. That would give it some insurance against shocks.